3.2 Sustainability Accounting Standards Board (SASB) Standards
5 min read•july 30, 2024
The Standards are a key tool for companies to report on financially material sustainability issues. These industry-specific standards help businesses identify and disclose the most relevant sustainability topics, focusing on what matters most to investors and financial performance.
complement other global reporting frameworks like GRI and TCFD. By providing standardized metrics and protocols, they enable companies to benchmark performance, communicate effectively with investors, and integrate sustainability information into financial reports, supporting better decision-making and risk management.
SASB Standards Approach
Industry-Specific Standards
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- SASB Standards are organized by 11 sectors that encompass 77 industries
- Each industry has its own unique standard that identifies the minimal set of financially material sustainability topics and their associated
- SASB's Sustainable Industry Classification System (SICS) categorizes companies into sectors and industries in accordance with their shared sustainability risks and opportunities
- SICS enables comparison of sustainability performance within an industry
- Examples of SICS sectors include Health Care, Financials, and Infrastructure
Focus on Financial Materiality
- SASB Standards focus solely on financially material issues, which are defined as issues that are reasonably likely to impact the financial condition or operating performance of a company and therefore are most important to investors
- This approach ensures the standards are cost-effective for companies and decision-useful for investors
- It allows companies to prioritize the most relevant sustainability topics for their industry
- SASB Standards enable companies to communicate their governance around the risks and opportunities related to the sustainability topics in their industry in a standardized manner
- This supports better risk management and decision-making by companies and investors
- SASB Standards are intended to constitute suitable criteria for preparing an Integrated Report in accordance with the framework
- Integrated reporting combines financial and sustainability information to provide a holistic view of a company's performance
Materiality Assessment in SASB
Research Phase
- SASB identifies financially material issues through a rigorous process
- The process involves examining evidence of interest and evidence of financial impact for each sustainability topic
- Evidence of interest is determined by searching tens of thousands of industry-related documents such as:
- Form 10-Ks (annual reports filed with the SEC)
- Shareholder resolutions
- reports
- Media coverage
- SEC comment letters
- Evidence of financial impact is determined by evaluating:
- Sell-side research reports
- Investor call transcripts
- Third-party case studies
- Anecdotal evidence
- News articles
Consultation and Publication Phases
- In the consultation phase, SASB gathers additional input by convening industry working groups
- These groups consist of industry experts and market participants who provide valuable insights and feedback
- In the publication phase, SASB releases an exposure draft of the standards for a 90-day public comment period
- This allows stakeholders to review and provide feedback on the proposed standards
- After considering the feedback, SASB finalizes and publishes the standards
- SASB's standards-setting process is transparent, balanced, and follows best practices
- It considers the perspectives of a variety of stakeholders while focusing on the needs of investors
- This approach ensures the standards are credible, reliable, and useful for decision-making
SASB Disclosure of Sustainability Information
Standardized Metrics and Protocols
- SASB Standards provide companies with designed to communicate performance on industry-level sustainability topics
- These metrics are designed to be integrated into such as the Form 10-K or 20-F (for foreign issuers)
- Companies can also disclose SASB information in a stand-alone sustainability report, on their website, or in an integrated report
- Each SASB Standard includes:
- Disclosure topics: Industry-specific sustainability topics that are likely to be material for most companies in the industry
- Accounting metrics: Standardized, quantitative metrics that measure company performance in relation to each disclosure topic (categorized as quantitative or discussion and analysis)
- : Guidance on definitions, scope, accounting, compilation, and presentation of the accounting metrics
- : Industry-specific metrics that quantify the scale of a company's business and are intended for use in conjunction with accounting metrics to normalize data and facilitate comparison
Benefits of SASB Disclosure
- SASB recommends that companies use SASB Standards to guide investor-focused disclosure on the sustainability issues that matter most to financial performance in their industry
- This approach helps companies provide decision-useful information to investors
- Companies can use SASB Standards to benchmark their performance against industry peers and communicate their sustainability performance in a decision-useful way to investors
- This enables better assessment of risks and opportunities and supports informed decision-making
- Disclosure of SASB metrics can lead to improved sustainability performance over time as companies strive to manage and report on these issues
- It can also enhance a company's reputation and credibility with investors and other stakeholders
SASB Standards vs Other Frameworks
Complementary to Other Frameworks
- SASB Standards are designed to complement other sustainability reporting frameworks, such as:
- Standards, which focus on a broader range of sustainability topics that are material to a wide range of stakeholders
- recommendations, which provide a framework for climate-related financial disclosures across industries
- SASB has a memorandum of understanding with GRI to guide companies in using both sets of standards together
- This enables companies to meet the needs of a wide range of stakeholders while providing decision-useful information to investors
- SASB has also mapped its standards to the TCFD recommendations to help companies disclose climate-related financial information in alignment with both frameworks
- This supports more comprehensive and consistent climate-related disclosure
Differences in Scope and Approach
- SASB Standards focus on industry-specific sustainability topics that are financially material to investors
- Other frameworks, such as GRI, may cover a broader range of sustainability topics that are material to a wider group of stakeholders
- SASB Standards provide metrics that are tailored to each industry, while other frameworks may provide more general guidance applicable across industries
- For example, TCFD recommendations provide a high-level framework for climate-related disclosures, while SASB Standards provide industry-specific climate-related metrics
- SASB Standards are designed to be cost-effective for companies and decision-useful for investors, while other frameworks may require more extensive disclosure
- SASB Standards are intended to be used in mandatory filings and other investor-focused communications, while other frameworks may be used in voluntary sustainability reports or other communications
- However, many companies use SASB Standards alongside other frameworks to provide a comprehensive view of their sustainability performance to investors and other stakeholders
Key Terms to Review (24)
Accounting metrics: Accounting metrics are quantitative measures used to assess and evaluate a company's financial performance, efficiency, and sustainability. These metrics help stakeholders understand the financial implications of sustainability practices and can provide insights into a company's overall health, guiding investment and operational decisions. In the context of sustainability accounting, these metrics are essential for aligning financial reporting with environmental, social, and governance (ESG) factors, ensuring that companies disclose relevant information transparently.
Activity metrics: Activity metrics are quantitative measures used to assess and evaluate the performance and impact of specific activities within an organization, particularly in relation to sustainability efforts. These metrics help organizations understand how their operations align with sustainability goals by providing data on resource usage, emissions, and other key performance indicators. They serve as essential tools for decision-making and reporting, enabling companies to identify areas for improvement and communicate their sustainability performance effectively.
Benchmarking: Benchmarking is the process of comparing a company's performance metrics to industry standards or best practices from other organizations. This practice helps organizations identify areas for improvement and set performance targets, guiding strategic planning and decision-making.
Carbon footprint analysis: Carbon footprint analysis is the assessment of the total amount of greenhouse gases, specifically carbon dioxide and other carbon compounds, emitted directly and indirectly by an individual, organization, or product throughout its life cycle. This analysis helps businesses understand their environmental impact, informs sustainability reporting, and drives efforts to reduce emissions in various reporting frameworks and standards.
Corporate Social Responsibility (CSR): Corporate Social Responsibility (CSR) is a business model where companies integrate social and environmental concerns into their operations and interactions with stakeholders. This approach emphasizes ethical practices, transparency, and accountability, aiming to create positive impacts on society while ensuring long-term business success. CSR connects to various dimensions of sustainability, including energy efficiency, the adoption of standards, and global goals, while also addressing the importance of credibility in reporting.
Data integrity: Data integrity refers to the accuracy, consistency, and reliability of data throughout its lifecycle. It is essential for ensuring that the information collected, stored, and reported maintains its original intent and remains unaltered from its source. Strong data integrity is crucial for effective decision-making, regulatory compliance, and maintaining stakeholder trust.
Environmental Impact Metrics: Environmental impact metrics are quantitative measures used to assess the effects of organizational activities on the environment, helping stakeholders understand and manage sustainability performance. These metrics allow companies to track their environmental footprint through various indicators, such as greenhouse gas emissions, water usage, and waste generation, thus providing a framework for reporting and improving sustainability efforts. By utilizing these metrics, organizations can align with industry standards and demonstrate accountability in their environmental practices.
EU Non-Financial Reporting Directive: The EU Non-Financial Reporting Directive is a regulation established by the European Union that requires certain large companies to disclose information regarding their environmental, social, and governance (ESG) practices. This directive emphasizes the importance of transparency and accountability in corporate sustainability reporting, helping stakeholders to understand how businesses impact society and the environment.
Global Reporting Initiative (GRI): The Global Reporting Initiative (GRI) is an international independent organization that provides a comprehensive framework for sustainability reporting, enabling organizations to measure and communicate their economic, environmental, and social impacts. GRI standards help companies report on their sustainability performance, ensuring transparency and accountability while promoting sustainable development practices across various sectors.
International Integrated Reporting Council (IIRC): The International Integrated Reporting Council (IIRC) is a global coalition of regulators, investors, companies, standard setters, and academics that promotes integrated reporting as a means to improve the quality of information available to stakeholders. By emphasizing the interconnectedness of financial and non-financial performance, the IIRC encourages organizations to create reports that reflect their strategy, governance, performance, and prospects in a way that enhances accountability and decision-making.
Mandatory filings: Mandatory filings refer to the legal obligation of companies to disclose certain information to regulatory authorities, ensuring transparency and accountability. These requirements often involve financial data, operational practices, and sustainability impacts, which help stakeholders assess a company's performance and risks. In the context of sustainability reporting, these filings play a crucial role in promoting responsible business practices and providing investors with necessary information to make informed decisions.
Materiality: Materiality refers to the principle of determining which sustainability issues are significant enough to influence the decision-making processes of stakeholders, including investors, customers, and regulators. It helps organizations identify and prioritize the environmental, social, and governance (ESG) factors that are most relevant to their operations and stakeholder expectations.
Materiality Assessment: A materiality assessment is a process that helps organizations determine which sustainability issues are most significant to their stakeholders and have the greatest impact on the company's performance. This process is essential for aligning sustainability efforts with business strategy and ensures transparency in reporting by focusing on relevant issues that matter to both the company and its stakeholders.
SASB Standards: The Sustainability Accounting Standards Board (SASB) Standards provide a framework for companies to disclose sustainability information that is financially material to investors. These standards focus on the environmental, social, and governance (ESG) issues that are most relevant to specific industries, enabling stakeholders to assess a company's long-term performance and risk management strategies.
SEC disclosure requirements: SEC disclosure requirements are regulations set forth by the Securities and Exchange Commission that mandate public companies to disclose specific financial and operational information to ensure transparency and protect investors. These requirements play a vital role in corporate sustainability reporting as they dictate what companies must report, including environmental impacts, risks, and sustainability practices. Understanding these requirements helps evaluate the credibility of sustainability reports and the extent to which companies are accountable for their sustainability claims.
Social Performance Indicators: Social performance indicators are metrics used to measure the social impact of a company's operations, including its effect on employees, communities, and society at large. These indicators help organizations assess their contributions to social goals and provide transparency to stakeholders regarding their social responsibility practices.
Stakeholder engagement: Stakeholder engagement is the process of involving individuals, groups, or organizations that have an interest or stake in a company's activities and decisions. It plays a critical role in sustainability reporting as it helps identify stakeholder expectations and concerns, which can influence the company's strategy and reporting practices.
Standardized sustainability metrics: Standardized sustainability metrics are quantifiable measures used to assess and compare the environmental, social, and economic performance of organizations in a consistent manner. These metrics provide a framework for companies to report their sustainability efforts and impacts, allowing stakeholders to make informed decisions based on comparable data. By using standardized metrics, organizations can improve transparency, facilitate benchmarking, and enhance accountability in sustainability reporting.
Sustainability Accounting Standards Board (SASB): The Sustainability Accounting Standards Board (SASB) is an independent nonprofit organization that develops and disseminates sustainability accounting standards to help public corporations disclose material, decision-useful information to investors. SASB's standards are designed to improve the transparency and comparability of sustainability performance across industries, which is crucial for effective risk management and compliance.
Sustainability audits: Sustainability audits are comprehensive assessments of an organization's sustainability practices and performance, aimed at evaluating its environmental, social, and governance (ESG) impacts. These audits provide a systematic approach to identify strengths and weaknesses in sustainability initiatives, enabling organizations to enhance their reporting and compliance with established standards, such as those set by the Sustainability Accounting Standards Board (SASB). By systematically reviewing sustainability efforts, organizations can better align their operations with stakeholder expectations and regulatory requirements.
Sustainability governance: Sustainability governance refers to the framework and processes through which organizations manage their social, environmental, and economic responsibilities. It encompasses the policies, practices, and decision-making structures that ensure accountability and transparency in sustainability efforts. This governance plays a critical role in aligning an organization's goals with sustainable development objectives, often guided by standards that help measure performance and communicate progress effectively.
Sustainable supply chain: A sustainable supply chain refers to the management of the flow of goods and services in a manner that minimizes environmental impact, promotes social responsibility, and ensures economic viability throughout the lifecycle of a product. This concept emphasizes transparency, ethical practices, and the reduction of resource consumption, aligning with frameworks that advocate for sustainability in business operations.
Task Force on Climate-related Financial Disclosures (TCFD): The Task Force on Climate-related Financial Disclosures (TCFD) is an organization established to develop recommendations for more effective climate-related financial disclosures that promote transparency and informed decision-making by investors, lenders, and insurance underwriters. Its framework encourages companies to disclose information related to the financial impacts of climate change, linking sustainability reporting to risk management and compliance practices, regulatory frameworks, and sustainability indices.
Technical Protocols: Technical protocols are standardized guidelines or procedures that outline the processes and methodologies for collecting, analyzing, and reporting data in a consistent manner. These protocols ensure that sustainability-related information is gathered and reported transparently, helping organizations maintain credibility and comparability in their sustainability efforts.