Sustainability and business. Sustainability frameworks and standards Sustainability Accounting Standards Board (SASB)

Business relationships in difficult times

Sustainability and business

Frameworks and standards — Sustainability Accounting Standards Board (SASB) November 2020

Our ‘Sustainability and business thought leadership programme’

As highlighted in the Sustainability and business — the call to action; build back better report, we have embarked on a thought leadership programme that explores accountancy and sustainability. This is part of a series of briefs exploring the topic of sustainability, business and the finance professional’s key role. These briefs will help organisations consider the sustainability issues, how to integrate them into their long-term decision-making, and how to incorporate these issues into internal and external reporting.

This paper is designed to present a summary of a specific standard or framework. It is written from the management accounting perspective. As a finance professional, you are likely to encounter one or many of the sustainability frameworks and standards. It is a crowded and fragmented landscape, with slightly different terms, inconsistent language and various measures between the numerous methodologies. Adding to the confusion is whether adoption is voluntary or mandatory, and that some organisations work with combinations of standards and frameworks at the same time. Finally, the approaches to reporting also differ. They range from annual reports, integrated reports, sections on an organisation’s website aimed at a specific audience or a stand-alone sustainability report.

Fortunately, there are several initiatives underway to address this fragmented accounting and reporting landscape and build a coherent global approach to corporate reporting that
encompasses both financial and non-financial reporting.¹

A framework or a set of standards? You must understand this difference.

A framework is a set of principles-based guidance for how information can be structured and prepared, and what broad topics should be covered. A set of standards are specific, replicable and detailed requirements for what should be reported for each topic. They are rules-based requirements.

Background

The Sustainability Accounting Standards Board (SASB), based in the United States, was established in 2011 with the original intent of providing standards for the U.S. capital markets. The majority (55%) of companies using the standards are within the United States.² However, the reach of the SASB is increasingly global, and its mission is, ‘to help businesses around the world identify, manage and report on sustainability topics that matter most to their investors’, with a focus on what is financially material. The standards were launched in 2018.³

There are two main users of the SASB standards:

Corporations that want to disclose financially material, decision-useful information to their investors
Investors looking for financially material, comparable, non-financial information and metrics across an industry

What are the SASB standards?

These are industry-specific standards that are used to identify financially material sustainability issues.

They intend to provide investors with comparable, non-financial information and metrics across an industry. The standards include an individual focus across 77 industries. These are arranged by 11 sector categories:

Consumer Goods (7 industries)
Extractive & Minerals Processing
(8 industries)
Financial (7 industries)
Food & Beverage (8 industries)
Health Care (6 industries)
Infrastructure (8 industries)
Renewable Resources & Alternative Energy (6 industries)
Resource Transformation (5 industries)
Services (7 industries)
Technology & Communications
(6 industries)
Transportation (9 industries)

The SASB Materiality Map identifies sustainability issues that are likely to affect the financial condition or operating performance of companies within an industry. There are 26 general categories focusing on broad sustainability issues impacting corporations.

These are segmented into five dimensions:

Environment (6 issues)
Social Capital (7 issues)
Human Capital (3 issues)
Business Model & Innovation (5 issues)
Leadership & Governance (5 issues)

How are the standards developed?

The SASB standards are developed in accordance with its conceptual framework that sets the concepts, objectives and principles that guide its standard-setting process. In setting its standards, SASB takes an evidence-based, market-driven approach to determine whether sustainability topics are likely to be of interest to an investor, and likely to have material impacts on the financial condition or operating results of a company. Significant research and market engagement at both the industry and company level are key to this end.

In addition to identifying issues that are reasonably likely to be material, and decision-useful for both companies and investors, the objectives also give credence to cost-effectiveness for the corporation. Not only focusing on financially material issues, SASB also attempts to harmonise its standards with existing metrics and frameworks, where possible, to minimise
the corporate reporting burden.

The SASB Conceptual Framework also outlines principles for topic selection, including the potential for the topic to affect the ability to create value. It also lays out criteria for accounting metrics, including completeness, comparability and verifiability.

Based on input from companies that have already implemented their standards, SASB offers the following approach for companies evaluating their adoption:

Review and understand SASB metrics.
Analyse the delta between existing information and planned disclosures.
Identify SASB metrics to be disclosed.
Ensure data reliability.
– Evaluate internal control over SASB metrics.
– Consider disclosure controls and procedures.
– Consider independent, third-party assurance

While the SASB standards are broken down into the 77 sectors across the 11 industry categories, the specific issues that drive long-term value creation will vary from company to company, as well as from one industry to the next. Accordingly, when evaluating SASB standards implementation, consideration needs to be given not only to the key issues, but also any unique circumstances relevant to the business model, strategy and other contextual factors of the company.

Why are the standards needed?

The SASB standards and its reporting methodology focus on producing organisational decision-useful information for the investment community. Corporations reporting against the SASB standards can communicate with their investment community, producing comparable non-financial
information and analysis of critical ESG issues affecting their ecosystem. The investment community is then able to compare industry performance, as well as risks and opportunities across the environmental, social and governance factors. It enables them to look beyond the traditional financial statements before making investment decisions.

In his January 2020 annual letter to corporate executives, Larry Fink, the chief executive officer of BlackRock, placed sustainability and the climate change issue at the centre of its investment process. Fink set out that, ‘climate change has become a defining factor in companies’ long-term prospects’ and ‘we are on the edge of a fundamental reshaping of finance’.⁴

In their investment stewardship approach, Fink and BlackRock calls out the Sustainability Accounting Standards Board (SASB) for providing ‘a clear set of standards for reporting sustainability information’.

Who will encounter the standards?

Finance professionals working for corporate entities are more likely to encounter the SASB standards. These are corporations looking to understand how their sustainability and finance performances intersect. It is also possible that organisations that have the Task Force on Climate-Related Financial Disclosures (TCFD) on their radar also are aware of SASB. The 2020 annual letter to corporate executives from Fink at BlackRock called out the value of SASB Standards and TCFD Framework aligned reporting.

If your organisation is using or contemplating the SASB standards the 2019 CIMA professional qualification syllabus and CGMA competency framework (2019 edition) can help you
ask the right questions to identify your potential knowledge and skills gaps.

What’s next from the AICPA & CIMA?

We will continue to watch the sustainability space and
play a central role in its development. We will ensure that the journey towards the development of global
standardised comparable ESG metrics and non-financial reporting is not at the expense of closing any future sustainability debate and innovation.

We aim to achieve a balance of sustainability reporting and assurance alongside data-driven insights so that resilient organisations and finance
professionals can address future prosperity, planet and people challenges.

Endnotes

In September 2020, SASB and four other sustainability framework and standards organisations announced their intention to work together to create a comprehensive approach to corporate reporting.

The five bodies are:

• Corporate Reporting Dialogue (CRD)
• The Climate Disclosure Standards Board (CDSB)

• The Global Reporting Initiative (GRI)
• The International Integrated Reporting Council (IIRC)
• The Sustainability Accounting Standards Board (SASB)
(Accessed 16 September 2020).
In November 2020, SASB announced their intention to merge with the International Integrated Reporting Council (IIRC) to created single organisation called the Value Reporting Foundation. This is expected to happen by the middle of 2021. (Accessed 25 November 2020).

IFAC, the global body of the accounting profession, called for the creation of a new sustainability standards board that would exist alongside the IASB under the IFRS Foundation. (Accessed 25 September 2020)
As of June 2020, 55 percent of companies that are reporting using the SASB Standards are domiciled with the United States.(Accessed 14 September 2020).
In July 2020, SASB announced the creation of a collaborative workplan with the Global Reporting Initiative (GRI). The collaboration aims to, ‘demonstrate how some companies have used both sets of standards together and the lessons that can be shared’ and provide greater clarity inthe sustainability reporting ecosystem. (Accessed 16 September 2020).
Larry Fink. A fundamental reshaping of finance. January 2020. (Accessed 9 June 2020).

Chartered Global Management Accountant^® (CGMA)

CGMA is the most widely held management accounting designation in the world. It distinguishes more than 137,000 accounting and finance professionals who have advanced proficiency in finance, operations, strategy and management. In the United States, the vast majority also are CPAs. The CGMA designation is underpinned by extensive global research to maintain the highest relevance with employers and develop competencies most in demand. CGMA designation holders qualify through rigorous education, exam and experience requirements. They must commit to lifelong education and adhere to a stringent code of ethical conduct. Businesses, governments and not-for-profits around the world trust CGMAs to guide critical decisions that drive strong performance.
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Association of International Certified Professional Accountants

The Association of International Certified Professional Accountants (the Association) is the most influential body of professional accountants, combining the strengths of the American Institute of CPAs^® (AICPA) and the Chartered Institute of Management Accountants^® (CIMA) to power opportunity, trust and prosperity for people, businesses and economies worldwide. It represents 650,000 members and students in public and management accounting and advocates for the public interest and business sustainability on current and emerging issues. With broad reach, rigor and resources, the Association advances the reputation, employability and quality of CPAs, CGMA designation holders and accounting and finance professionals globally.
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Report author:

Dr. Martin Farrar
Associate Technical Director
Research and Development — Management Accounting,
Association of International Certified Professional Accountants

Kenneth W. Witt
Senior Manager,
Management Accounting & Member Engagement
Association of International
Certified Professional Accountants

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