SASB — Promoting Sustainability Accounting Metrics for Managers and Investors

Submitted by Kelly Eisenhardt

In today’s world, many investors are looking closely at a company’s sustainability performance and risks. The Sustainability Accounting Standards Board (SASB) continues to advance the use of sustainability accounting standards that are backed by evidence-based research and stakeholder participation.

Himani Phadke is the Research Director of the Sustainability Accounting Standards Board (SASB).  Her prior roles include financial consulting at LECG, London, and policy development at the UK Treasury. At the Treasury, she developed policy proposals for investment banking reform with legislation subsequently adopted by the UK Parliament. Ms. Phadke also co-founded a renewable energy social enterprise, REwiRE, focused on scaling up energy access solutions in emerging markets. She has an MA in International Policy – Energy and the Environment from Stanford University, an MSc in Development Economics from Oxford University (UK) and a BA in Economics and Statistics from Mumbai University (India.) 

How is SASB helping to expand sustainability metrics around the world? 

We have entered the age of disclosure and there are governments and stock exchanges around the world monitoring the sustainability efforts of publicly traded companies. At SASB, we focus on companies that are publicly traded in the United States. This includes companies that may be foreign based or have international operations.

Our organization has developed standards that help companies focus the information they collect about their operations and transform it into useful information for investors.

With the 90-day public comment period underway, what are the key updates under review?

There are two documents out for comment – the Conceptual Framework and the Rules of Procedure. The Conceptual Framework outlines the basic principles of the standards and their beneficiaries. The Rules of Procedure describes the proposed governance structure and standards setting activities. It’s important to SASB that our process is open and transparent.

Why is it important to release a new document that outlines the SASB Rules of Procedure? 

SASB has developed provisional standards for 79 industries across 10 sectors. This next phase is needed to codify and maintain the standards so they remain relevant over time. 

Our initial focus was on building the framework and an initial set of standards. This next stage is about adding in new processes that support the standards’ codification and ongoing refinement. Our goal is to further increase the robustness and transparency of SASB’s standards development process. 

How does grouping related industries help with sustainability risk management?

Certain companies in certain industries have risks and characteristics that are inherent only to them. Each industry and sector is affected differently by the megatrends. For example, if we look at data security and water scarcity, we know that these two trends affect the retail sector differently than the heavy industrial sector. Also, the risk level with regard to sustainability is different within different industries. For example, water stress affects manufacturing to a far greater degree than it affects the software industry. By providing a portfolio view of sustainability risks and impacts by industry, companies and investors can better classify the challenges they face.

Companies that begin to monitor and measure their performance will see gains in multiple ways. SASB helps companies tell investors how they’re tackling the sustainability megatrends that matter to their industry. In addition, the framework also helps companies do a comparison of their company to industry peers.

What criteria and quality metrics will be used to evaluate the relevance and usefulness of the standards? 

In addition to soliciting feedback on the Conceptual Framework and Rules of Procedure, SASB is entering a period of consultation with companies and investors, in which we solicit feedback on the cost-effectiveness and decision-usefulness of the provisional standards.  The upcoming consultation phase will help us further evaluate the likely materiality of proposed topics and vet which metrics have the most relevance in the standard. One of the key questions we will ask is “Are these metrics going to be useful for managers and investors?” 

What are the benefits to having thousands of stakeholders engage and advise SASB on the standards? 

That’s an interesting question! To develop the provisional standards, we assembled industry working groups that provided feedback on the draft disclosure topics and accounting metrics. Some industries had more involvement than others—in the consultation phase, we are reaching out to all industries, with a special focus on industries where more participation is needed. 

The SASB working groups provided so much critical feedback. Both companies and investors aligned on the disclosure topics through the working group process. Our rule of thumb is that if a topic gets less than 75% during the working group voting, we question whether it is material or not. Often, we started with 20 to 30 topics but then through a process of voting and elimination, got down to the five most material and relevant issues to cover. This industry participation is critical—we want to provide a market standard for the market and by the market.

When do you expect final comments and how can readers be part of the comments process? 

The 90-day comment period launched on April 7, 2016, and ends on July 16, 2016. People can download and comment on the Rules of Procedures, the Conceptual Framework, and the SICS Classification System at www.sasb.org/comment. People can also write to our sector analysts for more information, or to provide feedback on the provisional standards, at comments@sasb.org.  We are proactively reaching out to companies for deeper dive discussions.

To learn more about SASB, readers can go to www.sasb.org or follow us on Twitter @sasb.