Notes from the G100 Virtual Forum on SASB

Andrew Porter, CFO AFIC & G100 Immediate Past Chair opening note

It is becoming increasingly obvious to CFOs and to business leaders that ESG reporting is now expected by our shareholders, by our investors, and by our regulators as well as the society as a whole. It’s very important for us to be able to understand what is expected and what is the best and easiest way to get there and to meet those expectations. Thank you to EY, to the Chartered Accountants and the CPA for their role in what I think is an extremely important topic.

David Atkin, CEO of CBUS comments on SASB

Most people are very familiar, with an acceleration of the movement around incorporating environmental, social and governance information in the decision making processes. It’s been on the horizon for 20 years, but now we have moved to a new phase. And we are also seeing increase focus from the community, regulators, and our members around expectations that asset owners, who are investors in capital markets and assets are incorporating sustainability issues into decision making. We need to think about the horizons that our members will be with us, and that requires us to understand many of the externalities that are not adequately priced into the markets. SASB is a significant opportunity to create consistency of recording around sustainability criteria. This is important because we see increasing levels of distrust in institutions around the world. If people are making claims about sustainability, it’s essential that it doesn’t turn into just a marketing exercise and that it is grounded in real statics, real information, real evidence.

As a final comment, within the Australian context, there’s an initiative underway called Australia’s Sustainable Finance Initiative. It’s where the finance industry is coming together to look at how Australia can meet its targets around Paris and also the SDGs. Their recommendations are currently being developed. Much of that goes to reporting transparency. I look forward to that being released in the coming weeks.

Terrence Jeyaretnam, Partner EY, presenting the preliminary findings from the sixth annual EY’s ESG Investor Survey, with data collected from about 300 investors, globally.

Given that the results are preliminary, and embargoed for media, we will circulate a copy of this report to the attendees in the next month once it is published.

Neil Stewart, Director of Corporate Outreach for SASB and Matthew Welch, President and COO the SASB Foundation introduction of SASB

SABS is developing a new discipline of sustainability accounting, in which the rigour and influence of that information can be as strong as the financial accounting standards. SASB exists to provide a common language between companies and investors on the economic impacts of sustainability, those that will hit the balance sheet or the income statement or affect the cost of capital. We are headquartered in the United States, but we have a global reach and global impact. Our standards have been downloaded over 400,000 times by over 30,000 users spanning 200 countries.

We focus on the ESG issues that are financially material, those that are likely to impact operating performance or financial condition of a company. We focus on information that will be decision-useful for investors and corporations. We make sure that the standards as we develop them will be cost-effective for companies to report and they’re cost-effective for a couple of reasons. One is we focus in on a small set of topics that are likely to be material and therefore it’s a small and focused set of information. Also, when we develop a metric, we look for metrics that are already in use by industry. We’re looking to distil the best most decision-useful set of information that the market may already have for the benefit of investors.

Our standards are industry-specific because the materiality of ESG issues is industry-specific. Take a trend like Climate Change. Nearly every company is affected by climate change, but it’s affected in very different ways. For a manufacturer, for example, it manifests as an energy efficiency issue. For an automaker, it can be a product design challenge, and for a bank, you want to know about how it’s managing climate risk and its loan portfolio. So that Industry Focus is very important to decision making. Our work is evidence-based and is market informed. The standards development comes out of a rigorous process of research and then involvement from the market, its perspectives of companies and investors and market intermediaries like securities lawyers and accountants who help determine what can be a decision-useful, effective KPI for communicating performance.

Neil Stewart, on distinguishing between frameworks and standards: 

The frameworks like TCFD typically provide high-level guidance about broad topics that should be disclosed. They are principles level frameworks. Standards, in contrast, provide significantly more detailed requirements about what should be reported‚ÄĒtypically developed using transparent and rigorous processes. So as a result of all those factors standards are a potent tool to ensure that there’s comparable consistent, reliable information in the marketplace, and that’s what we regularly hear from investors that that’s what they need. To compare it to the Financial Accounting Standards, we have generally accepted standards for financial reporting, and that’s what we aim to have in the non-financial reporting world.

The other thing to note about standards versus frameworks is that they can very often be used together. Standards can really be important building blocks when using frameworks for reporting. A great example of this is the TCFD and the TCFD recommendations, which represent a very elegant way of looking to ESG’s four pillars of governance, strategy, risk management, metrics and targets when looking at climate risk. TCFD is macro-level guidance about disclosure in these four areas, and it does not prescribe specific metrics. So how do you get comparable consistent and reliable information in a TCFD disclosure? And the answer is SASB standards for one. They do provide industry-specific metrics which can be used as a tool to implement TCFD disclosures. We have incorporated these four dimensions into our guidance and in terms of how to apply the size standards.

SASB and the GRI do not compete as they are very complementary standards with different definitions of materiality, for different purposes and audiences. SASB’s definition of materiality is financial materiality, how ESG issues are likely to impact a company’s financial performance in an industry-specific way, and it is targeted solely at investors. GRI’s definition of materiality is how a company’s actions are expected to impact the external environment and are aimed at a vast array of stakeholders, including investors. So the standards have different purposes, but they can be used together, and indeed many companies do use them together in parallel. The SASB standards do not replace the GRI standards, and the GRI standards do not replace the SASB standards.

Matthew Welch talking more about investor support: 

The support we built over the years comes in part from our powerhouse group called the investor advisory group, which right now numbers more than 50 members from 12 countries around the world. Collectively they manage 40 trillion in assets. We’ve been publishing annually, several sets of case studies written by investors, asset owners, asset managers, public equity, private equity, credit market, etc., showing different use cases for the SASB standards. In addition, another resource that we offer is our Engagement Guide, which is used by asset owners and managers to guide their discussions about the issues that matter.

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