Views on the integrity of global capital markets
27 April 2016

ESG Q&A with SASB: Why Investors Need Sustainability Accounting Standards

Four years ago, the Sustainability Accounting Standards Board (SASB) set out to identify the sustainability disclosure topics and metrics that are material, decision-useful, and cost-effective for companies to provide. Earlier this month, the SASB completed provisional sustainability accounting standards for 79 industries in 10 sectors, and is now soliciting input on the proposed process to codify the standards during a 90-day comment period that ends 6 July.

I recently talked to Jean Rogers, CEO and founder of the SASB, about the new sustainability accounting standards, including how investors should use this new information.

Why was this project necessary?

Investors are increasingly considering environmental, social, and governance (ESG) factors because they provide insight into how effectively a company is being managed to deliver long-term performance. To evaluate ESG performance, investors need data that is material, relevant, reliable, and comparable. However, such data does not exist for sustainability factors today. That’s the need the SASB is filling. The SASB was formed to set market standards for disclosure of material sustainability factors to investors.

We’ve now developed provisional standards for all 79 industries. This is an important step — for the first time, we can begin to see patterns of material ESG risk and exposure across an equities portfolio. And, for the first time, we have standards that can characterize the nature of that risk and enable investors to understand and price it.

Did issuers and investors have a voice in this process?

To develop the provisional standards, SASB used an evidence-based, market-informed process. We ran balanced working groups composed of one-third companies, one-third investors, and one-third other representatives, in which more than 2,800 people, affiliated with $23.4 trillion of assets under management and $11 trillion market capitalization, participated. In these working groups, 82% of issuers and investors agreed that the SASB’s proposed disclosure topics are likely to constitute material information, and thus warrant a standard.

How should investors use this information?

The SASB standards are designed to integrate into mandatory financial filings, so that information is reliable and all investors have access to material information, without having to request it via a questionnaire. The SASB standards support the full range of investment decisions, including portfolio construction, industry evaluation, security selection, and corporate engagement.

Are there plans to expand outside the United States, or are most industries and sectors around the world already covered?

The standards apply to both US and non-US companies that access capital in the US markets and are subject to SEC reporting requirements. Although the SASB standards are grounded in US securities law, the topics that the SASB sets standards for are industry specific, not region specific, and therefore apply to most companies and investors in global markets. We see significant international interest in our standards — nearly half of our standards downloads are from countries outside the United States.

The SASB recently launched an education program. Can you tell us a little about that?

The Fundamentals of Sustainability Accounting (FSA) Credential teaches you how to identify, quantify, communicate, and interpret material sustainability information. For analysts, it’s a way to understand how material sustainability information affects investment analysis, and to learn how to draw conclusions about a company’s future value based on its SASB disclosures.

Last fall (2015) we launched level one of this credential (principles), and this fall (2016) we will launch level two (practices). The SASB is registered with CFA Institute as an approved provider of continuing education programs.

What is the plan for revisiting the standards to ensure that they remain fresh?

The SASB is now entering its next phase of standards development with a period of consultation on the provisional standards and proposed process to codify and maintain them. The purpose of the consultation period is to ensure that the standards meet the needs of investors in a manner that is cost-effective for companies. To get involved, submit a comment on our proposed codification process and meet with our dedicated sector analysts to provide feedback on the provisional standards.

Read my ESG Q&A with Steve Lydenberg

Read a recent CFA Institute study: Environmental, Social, and Governance Issues in Investing: A Guide for Investment Professionals

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Image Credit: Luke Pieczynski

About the Author(s)
Matt Orsagh, CFA, CIPM

Matt Orsagh, CFA, CIPM, is a director of capital markets policy at CFA Institute, where he focuses on corporate governance issues. He was named one of the 2008 “Rising Stars of Corporate Governance” by the Millstein Center for Corporate Governance and Performance at the Yale School of Management.

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