Sustainability Accounting Standards Board (SASB) define industry-specific, financially material sustainability issues that companies voluntarily disclose to their investors. Climate change poses financial threats, and this information helps investors assess the long-term viability of investment decisions. SASB standardizes this information so that it is comparable across companies and geographies.
What is SASB?
SASB (pronounced “sas-bee”) is the Sustainability Accounting Standards Board. SASB defines a set of standards for companies to disclose financially material sustainability information to their investors – i.e. how environmental, social, and governance (ESG) issues can affect financial performance. Similar to the way the International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (US GAAP) standardize the reporting of financial information, SASB seeks to do so for sustainability information.
Recognizing the economic risks posed by climate change, SASB is specifically designed for investors and other providers of financial capital. Companies report on sustainability issues that are most likely to impact their performance, which can inform better investment decisions.
The Standards are industry-specific because the financially material sustainability issues differ between industries. For example, labor conditions in the supply chain are material for the Apparel industry, but not necessarily for IT Services. As such, there are separate standards for 77 industries.
SASB does not require a specific reporting mechanism. Companies determine how they want to report, which can be sustainability reports, integrated reports, websites, or annual reports to shareholders.
For a closer look at SASB reporting, visit SASB Reporting – What is it, and what are the best examples?
Why is SASB important?
For companies, SASB enables response to investor demands for sustainability information. Additionally, the Standards help companies identify, measure, and track sustainability issues that affect long-term value creation.
As for investors, SASB provides sustainability data that is comparable and material to financial performance. The reports can help improve equity and credit analysis by incorporating information beyond financial statements and empassing other risk measures, such as climate risk.
Today, more than 250 investors representing $75 trillion assets-under-management use SASB Standards to inform their decision-making. In his 2020 Letter to CEOs, BlackRock CEO Larry Fink said, “BlackRock believes that SASB provides a clear set of standards for reporting sustainability information across a wide range of issues…we are asking the companies that we invest in on behalf of our clients to publish a disclosure in line with industry-specific SASB guidelines.”
What is the difference between TCFD and SASB?
You may be thinking, “Financial impact of sustainability issues? That sounds like TCFD.” And you’re right – TCFD and SASB are closely related.
TCFD, or the Task Force on Climate-related Financial Disclosures, develops recommendations on the information companies should disclose to help investors and insurance underwriters assess risks related to climate change. However, TCFD only recommends and does not set standards for implementation.
That’s where SASB comes in. Implementing SASB Standards fulfills the disclosure recommendations from the TCFD. Companies looking to support TCFD’s recommendations can follow SASB’s TCFD Implementation Guide to put principles into practice.
What is the difference between GRI and SASB?
A major counterpart to SASB is the Global Reporting Initiative (GRI) Standards. While both provide corporate sustainability standards, the key difference between the two is the audience and therefore, the information reported.
GRI identifies issues that are of primary importance to stakeholders, which may or may not be financially material. GRI is an “inside-out” perspective, reporting on the economic, environmental, and social impacts of a company on its stakeholders.
SASB on the other hand, is an “outside-in” perspective, reporting on the sustainability-related risks and opportunities that will most likely affect a company’s financial condition.
Nonetheless, SASB and GRI both aim to improve transparency, and many companies report with both standards. In 2020, the two organizations announced a collaboration to help companies understand how both standards can be used.
Ultimately, different sustainability-related disclosure frameworks serve unique purposes, and companies must determine which tools best meet the needs of their key stakeholders.
The Future of SASB
SASB was founded in 2011 and continues to evolve with the growing demand for sustainability reporting. In June 2021, the International Integrated Reporting Council (IIRC) – which managed the Integrated Reporting Framework – and SASB merged under the Value Reporting Foundation to synergize and simplify reporting. Then in March 2022, the Value Reporting Foundation (a.k.a. SASB) announced that it will consolidate under the IFRS Foundation to create the new International Sustainability Standards Board (ISSB).
Having many standards and boards is confusing – and these organizations recognize that. By collaborating under the ISSB, they aim to set a global baseline of sustainability disclosures to improve comparability and adoption. According to Emmanuel Faber, Chair of the ISSB and former CEO of Danone, “Rarely do governments, policymakers and the private sector align behind a common cause. However, all agree on the importance of high-quality, globally comparable sustainability information for the capital markets.”
Even though SASB continues to evolve, it will serve as the baseline for the new standards. Therefore, it is important for companies to start reporting sooner than later.
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