Collect and communicate SASB-aligned, financially-material sustainability information effectively to your investors.
Each year, more companies choose to report to the Sustainability Accounting Standards Board (SASB). SASB helps organizations disclose financially-material and industry-specific environmental, social, and governance (ESG) data that supports investors to make decisions.
According to a SASB press release from November of 2020, 181 institutional investors have considered SASB for their accounting decisions or support its mission, accounting for 59 trillion dollars in assets. SASB standards trace metrics for organizational longevity that traditional accounting can sometimes miss, like the impact a company has on society and the planet. If your company wants to mitigate long-term risks, reduce contributions to climate change and invest in the well-being of employees, these reporting standards can help by effectively benchmarking performance. SASB reporting will show you where you stand in your sustainability efforts and help you decide on a plan for sustainable growth.
How SASB operates
SASB provides industry specific standards with quantitative and qualitative metrics that are broken down into the following topics:
The use of natural resources, emissions and other environmental concerns.
Contributions to and relationships with external communities.
Human resources and capital, such as employee growth and wellbeing.
Business model, innovation and efficiency.
Compliance, leadership, conflicts of interest and other concepts in business ethics.
These standards are created by a standards board that conducts extensive research to determine financially relevant metrics for each industry. Every 18 months, the standards are reassessed and put up for a public review session where anyone can submit recommendations for revisions. The Standards Advisory Group (SAG), a committee of third-party volunteers, gives feedback on each specific industry segment of the standards. Because of this process, SASB disclosure draws upon a comprehensive understanding of industry segments, supported by extensive research and expert assessment.
SASB reporting for risk management and investor interest
Research shows that gathering and reporting financially-material ESG metrics reduces financial risks for organizations. A study entitled “ESG, Material Credit Events, and Credit Risk,” published in The Journal of Applied Corporate Finance, shows that lower company ESG performance correlates with a higher likelihood of credit risks. The study also found that companies who violated government climate regulations or neglected the interests of their surrounding communities were more likely to be subject to lawsuits, fines, stock price decline and reputational damage.
Additionally, the 2019 Morgan Stanley Institute for Sustainable Investing Sustainable Signals survey found that 84% of individual investors would like financial products to align with their values and that 52% of the general population has made at least one sustainable investment. This investor interest correlates with similar studies into consumer behavior. For instance, 42% of millennials purchased from a specific brand because of its focus on sustainability. Through SASB reporting you can show investors where you perform well and where you can improve on sustainability within the context of your industry which can increase their focus on your company and lead to investment.
Getting started with SASB reporting
The process of reporting to SASB begins by determining your specific industry through the Sustainability Industry Classification System® (SICS®). This system pairs an analysis of your organization’s financial and market details with its sustainability profile to determine relevant quantitative and qualitative metrics.
After determining your industry, you can access the relevant industry standard to review metrics and assess how it can meet your reporting requirements using SASB’s guidance and case studies.
Tips for collecting and communicating SASB-relevant information
To navigate the reporting process effectively, we have lined up some guidance on a few crucial parts of the process.
Unique company characteristics relative to your SASB determined industry
After downloading and reading the relevant industry specific SASB standard for your company, you may need to do a bit more to determine which specific metrics are most relevant for your business.
Each business is a unique combination of customers, geographies, products, processes and supply chains, so there may be some disclosures relevant to your business that are not covered in your assigned industry standard, but which are likely covered by other SASB standards. After you get the relevant standard from the website, read through the disclosures that apply and see if they match your company’s footprint. Think about whether you would consider your peers or competition to be in the same industry. If this does not seem to apply to the industry you are allocated, look through the other related industry standards and use the SASB Implementation Primer to determine which disclosures you should report to.
Reporting to SASB involves coordinating between senior management, employees and often external stakeholders. As a result, to be effective SASB reporting requires creating a culture around sustainability across multiple functions outside the team charged with sustainability reporting. The higher the relevant stakeholders value sustainability, the more invested they will be in the reporting process and outcomes.
Here, we offer two recommendations:
Explain how reporting will affect management, employees, and the company. Sustainability, as SASB defines it, represents a holistic investment in both business development and its impact on the environment and communities. If employees see how it could improve topics of their interest, they will be committed to the process of thorough data collection.
Designate a clear plan for reporting that each function and team member understands thoroughly. This might involve training individuals, as well as setting up a team of sustainability reporting representatives across your organization. With a well-outlined and clearly communicated process, data will be collected more efficiently, be more accurate and of higher quality
Executives and the board of directors can support this initiative by aligning ESG reporting to the company’s long-term strategy. This often involves incorporating financial reporting with SASB reporting, starting with internally and then externally, e.g. with annual reports. Check out the SASB Implementation Primer’s set of questions for board members and executive leadership.
Once you have completed reporting, having organization-wide support will also help you implement strategies for sustainable, responsible growth.
Reporting and investor engagement
Understanding investors’ interests will help you in reporting results. Here are aspects to consider while communicating SASB reports:
SASB data is primarily pulled by investors for use directly in their portfolio management models or scraped by financial information aggregators such as Bloomberg, so it should be presented in a consistent machine readable format, typically a simple table.
SASB leaves it to the company to determine which format to report SASB data. Typically, it is included in a supplementary sustainability data pdf report alongside other ESG disclosures such as Global Reporting Initiative (GRI) or included within the annual report or presented in a separate excel extract
While the SASB disclosures in table form are a key first step, investors want to see how the company explains the link between its ongoing sustainability initiatives e.g. green manufacturing programs in its annual reports/investor presentations and its SASB data performance e.g. greenhouse gas emissions
Post SASB reporting is often a good time to engage with your major investors around their expectations for material sustainability topics for your business going forward and performance expectations. This will help to inform any changes to priorities for your ESG program in the next reporting cycle.
Digital reporting tools
With tightly specified data to be collected across a wide range of company functions and geographies, a sustainability management system is a great way to reduce manual work, automate reporting and improve data completeness, accuracy and quality. Additionally, as investors use non-financial SASB data alongside financial data to make investment decisions–like your income statement and balance sheet–the data quality and accuracy of your non-financial ESG data needs to be at the same level as your non-financial data. This means that manual excel-based approaches to SASB data collection are prone to error, requiring systematized approaches instead.
Keeping these tips in mind will help you at each step of the process: planning, data collection, data analysis and reporting. Knowing the ins and outs of your organization will help you get the entire organization on board and lead to a seamless reporting process. Understanding the specifics of your business with respect to your industry will enable you to determine which metrics to report. Finally, considering the interests of your various stakeholders will help you determine how to effectively communicate your plans and results.
Contact us to learn more about how UL 360 Sustainability Essentials software integrates with SASB to make the process even more seamless.
N.B. The information contained in this entry is provided by the above supplier, and does not necessarily reflect the views and opinions of the publisher