A breakdown of the SASB framework & benefits
A breakdown of the SASB framework & benefits
Investor appetites for sustainability and ESG (Environment, Social, Governance) focused companies have increased significantly over the last five years. Both corporations and investment firms now consider sustainability critical to operations and performance.
According to the Governance & Accountability Institute, 90% of companies in the S&P 500 Index issued sustainability reports in 2019. And a recent US SIF study reported ESG investing strategies increased 42% in the last two years to $17 trillion in 2020 (up from $12 trillion at the start of 2018).
As momentum builds, ESG and sustainability investing is on track to continue growing. According to Bank of America, another $20 trillion is set to flow into ESG funds over the next two decades. However, ESG adoption is currently struggling, particularly in the smaller, middle-market, due to one major factor: inconsistent ESG reporting and benchmarking standards.
Despite a large number of available resources, ESG analysts are unable to generate reliable, transparent performance data due to a lack of standardized reporting and benchmarking frameworks. Fortunately, this is changing, and the Sustainability Accounting Standards Board (SASB) standards provide a step toward solving the sustainability reporting problem.
What are the SASB Standards?
Founded in 2011, SASB is a nonprofit organization that develops industry-specific sustainability accounting standards. These standards are designed for investors who need access to sustainability information that is material to companies’ financial valuations. Companies worldwide use SASB standards to share their performance with investors through a variety of disclosure channels such as websites and corporate sustainability reports.
SASB recognizes that the material sustainability issues vary dramatically from one industry to another. For example, water usage is a material issue for the textile industry but is an irrelevant issue for the insurance industry. To support and drive the adoption of ESG reporting, SASB decided to create separate ESG reporting standards for each industry.
After seven years of research and engagement with thousands of corporations, in 2018, SASB published a comprehensive set of standards, 77 in all, covering 26 general ESG issue categories.
SASB standards provide comparable, consistent, and financially material corporate ESG data that enables investors to make better investment and voting decisions. ESG research and ratings agencies that provide third-party assessments of ESG performance to investors, such as MSCI, also use the SASB reporting framework. These assessments can have a positive impact on company performance ratings and help improve value.
There are 26 general issue categories that fall under five primary buckets: environment, social capital, human capital, business model & innovation, and leadership & governance. Reporting topics include sustainability matters such as water and energy management, customer privacy and data security, labor practices, product design and lifecycle management, and business ethics.
Since SASB standards differ by industry, companies can begin reporting on SASB standards by:
- Learning which industry standard has been assigned to your company on the SASB website
- Downloading the relevant industry standard from SASB
- Determining which SASB disclosures are relevant and aligned with your company
- Assessing where quantitative and qualitative data can be sourced within your business and where gaps exist
- Collecting, collating, and reporting on the data
- Communicating to and engaging with investors to understand their analysis and value thesis
ESG software and ESG consulting companies can also support the integration of SASB into streamlined solutions that can help companies aggregate data, streamline reporting, establish baselines, develop KPIs, track progress, and communicate with stakeholders.
SASB also recently launched the Fundamentals of Sustainability Accounting (FSA) Credential, two exams that explore and test the materiality of sustainability information. The FSA Credential is designed for professionals who benefit from understanding the link between financially material sustainability information and a company’s ability to drive business value.
The Level I exam focuses on principles and practices. Exam takers can learn how sustainability factors impact company value and investment performance as well as learn how to effectively communicate financially material sustainability information.
The Level II exam focuses on application and analysis. Exam takers can learn how industry-specific, financially material sustainability information can inform corporate and investor strategies as well as learn the skills needed to evaluate corporate performance based on sustainability factors.
The FSA Credential provides a way to embed material sustainability information into mainstream investing and corporate management practices while keeping companies accountable to sustainability and incorporating sustainability within the business’s financial and operational strategies.
The benefits of SASB
The SASB standards and FSA Credential deliver important benefits for corporations, for investors, and ESG adoption overall. Companies can:
- Build ESG sustainability strategies around the most material issues for their industry
- Optimize sustainability dashboards
- Reduce the cost of ESG reporting
- Increase a company’s ESG rating
- Improve company B2B relationships
Research also shows that firms with good performance on SASB topics significantly outperform firms with poor performance on those topics. Understanding SASB’s approach can help corporations and investors protect long-term value, leverage industry specific ESG performance benchmarks to drive investment strategies, and increase investment portfolio performance.
The SASB standards can significantly improve the alignment, communication, and collaboration between the many organizations and initiatives centered on sustainability. As companies continue to adopt these standards, SASB will become part of a common foundation upon which sustainability discussions and developments are anchored.
The SASB standards also provide a powerful way to raise the value of sustainability for both the corporate and investment world while supporting consumer demands and global sustainability goals.
ESG materiality assessments
With investors inquiring more and more frequently about what your company is doing in regard to responsible investment, how you treat employees and vendors, your dedication to sustainability initiatives, and other activities that fall under the ESG umbrella, it’s important to have answers to these questions.
An ESG materiality assessment empowers you to easily report on your current state and outline future initiatives while taking into consideration your business goals and risks. Download our guide to creating and extracting the maximum strategic value from an ESG materiality assessment.