Understanding the SASB Materiality Map
Understanding the SASB Materiality Map
Over the last decade, investors, lenders, and other financial capital providers have become increasingly aware of the impact ESG (Environmental, Social, Governance) issues have on a company’s financial performance. Investor demand for transparency surrounding ESG issues is transforming fiduciary responsibility and the larger landscape of corporate governance while creating a demand for clear standards and ESG assessment tools.
To nurture stronger communications with shareholders, companies are turning to initiatives such as the Global Reporting Initiative (GRI), Principles for Responsible Investment (PRI), and Sustainability Accounting Standards Board (SASB) to define relevant sustainability issues and understand their impact on a company’s financial performance.
SASB, in particular, was created to assist corporations in disclosing financially significant sustainability information to investors. To do this, SASB identified a complete set of ESG metrics that are most important to financial performance across 77 industries. These standards are explained through a Materiality Map that identifies and compares disclosure topics across industries and sectors.
Why is financial materiality important?
Financially material ESG issues can have a significant positive or negative impact on a company’s business model and value drivers, such as revenue growth, profitability, required capital, and risk. The purpose of materiality is to ensure the financial data that may affect investors’ decisions is disclosed in financial statements.
In the end, companies individually decide what is financially material and what information should be disclosed to investors, while taking regulatory constraints into consideration. Since there is a lot of publicly available ESG and sustainability data and metrics, it can be challenging to identify and assess what information is most valuable to the financial decision-making process.
SASB’s Materiality Map identifies the financially material issues that are reasonably likely to impact the financial condition or operating performance of a company and, thereby, are most important to investors.
Using the SASB Materiality Map
The SASB Materiality Map is an interactive tool for identifying and comparing ESG disclosure topics across industries and sectors. The map identifies 26 sustainability-related issues, known as “General Issue Categories,” that encompass a range of disclosure topics and their associated accounting metrics and vary by industry.
The general categories are grouped under five primary topics: Environment, Social Capital, Human Capital, Business Model & Innovation, and Leadership & Governance. From there, sector-level and industry-level mapping identifies how likely an issue is to be material for companies.
Companies can use the mapping tool to focus their sustainability initiatives on the most pressing issues and learn more about the metrics that underpin each disclosure item. The map can be used by investors to assess their portfolio’s exposure to sustainability risks and opportunities represented by each issue.
For example, real estate owners, developers, and investment trusts may find that energy, water, and wastewater management are the most pressing environmental concerns in their industry, whereas engineering & construction services may discover the greatest material issue to be their impact on biodiversity.
While the SASB Materiality Map is a basic reference to understand the SASB Standards, it can also be used for institutionalized investment research, product development, commercial activities, and publishing, reprinting, or creating derivative works, which requires a licensing agreement with the SASB Foundation.
About the SASB mission & standards
The mission of SASB is to enable businesses around the world to identify, manage, and communicate financially-material sustainability information to their investors. The SASB Standards are designed to:
- Surface and pinpoint financially-material sustainability information that is likely to affect the financial performance of a typical company within a specific industry
- Produce information that is decision-useful for investors
- Be cost-effective for companies to use
- Provide an evidence-based and market-informed process (which is modeled after the process used to develop financial accounting standards)
The SASB Standards are maintained under the oversight of the Value Reporting Foundation, a global nonprofit organization created to help businesses and investors develop a shared understanding of enterprise value and how it is created, preserved, or eroded.
A global adoption
As momentum builds, ESG and sustainability investing are 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.
The SASB Standards were recently endorsed in BlackRock CEO Larry Fink’s 2021 Letter to Investors as his top choice for a globally aligned ESG accounting standard. In fact, BlackRock has asked all companies in their portfolio to report in alignment with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and SASB.
He writes, “We are greatly encouraged by the progress we have seen over the past year – a 363% increase in SASB disclosures and more than 1,700 organizations expressing support for the TCFD.”
Ultimately, SASB is a helpful tool for companies seeking to communicate their value to investors. SASB can complement traditional financial reporting, alternative ESG reporting frameworks, and ESG reporting tools, assisting organizations in providing more effective disclosure on material ESG issues to the capital market.
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.