SASB: The industry specific, financially material, and decision-useful standards for ESG reporting

As vaccines are rolled out and hopes of fully emerging from the global pandemic brighten, the impact of what we went through is bringing about permanent change to the way business is conducted. The new US President and SEC leadership he appointed have already made their voices heard. While Covid-19 put the “S” front and center last year, climate risk is at the top of the political and regulatory agenda in 2021. At the same time, companies and their investors are looking beyond net-zero declarations and communicating the paths they’ll take to achieve climate related targets and the milestones by which their progress can be measured.

For investors and other capital market participants, the lack of reliable and comparable data from public companies prevent meaningful evaluation of ESG risks and opportunities.

The 2020 E&Y CCaSS survey we referenced in Part II of this series showed that 46% of investors – for whom “nonfinancial performance has played a pivotal role in their investment decision-making” – view the disconnect between ESG reporting and mainstream financial information as their top challenge. Another 37% said a lack of materiality in disclosures was the key problem. In other words, most investors need more ESG information that’s both financially material and disclosed in a decision-useful way. With the mission to bridge the gap between ESG and financial information, the Sustainability Accounting Standards Board (SASB) was established.

In this, the third and final part of our ESG series about SASB, we provide a brief overview of the organization’s reporting standards, the research process it uses to develop them, and provide real-world examples of how SASB Standards are implemented by public companies in their periodic reporting.

Note: the recent merger of SASB and IIRC to form the Value Reporting Foundation does not impact how a practitioner views or applies the SASB Standards. 

What do SASB Standards consist of?

SASB Standards were launched in late 2018, and in only a few years have received the endorsement of 226 institutional investors representing $72 trillion in AUM. Among them, Larry Fink, chair and CEO of BlackRock, the world’s largest institutional investor, has been a prominent and outspoken proponent of integrating ESG factors into investment decisions. Corporate adoption of the standards has been equally impressive, with 778 unique reporters globally through April 2021, including 253 unique reporters in the last four months.

Every SASB Standard contains the following:

  • Disclosure topics – the industry-specific topics most likely to constitute information that is material to a reporting company’s operating results and financial condition, and a brief description of how management, or mismanagement, of each topic can affect value creation.
  • Accounting metrics – A set of accounting metrics to measure ESG performance in relation to each disclosure topic as well as discussion and analysis of this performance in a way that’s similar to information found in the MD&A of quarterly or annual reports filed with the SEC.
  • Technical protocols – Each accounting metric is accompanied by a technical protocol that provides guidance on definitions, scope, implementation, compilation, and presentation, all of which are intended to constitute suitable criteria for third-party assurance of the ESG information reported.
  • Activity metrics – A set of metrics that quantify the scale of a company’s business and intended for use in conjunction with accounting metrics to normalize ESG data and facilitate comparisons between companies.

Examples of ESG disclosure topics and accounting metrics under SASB

Figure 1: An environmental topic and related metrics in the SASB Standard applicable to the Software and IT Services industry

Environmental Footprint of Hardware Infrastructure (1) Total energy consumed, (2) percentage grid electricity, (3) percentage renewable Quantitative Gigajoules (GJ), Percentage (%) TC-SI-130a.1
(1) Total water withdrawn, (2) total water consumed, percentage of each in regions with High or Extremely High Baseline Water Stress Quantitative Thousand cubic meters (m3), Percentage (%) TC-SI-130a.2
Discussion of the integration of environmental considerations into strategic planning for data center needs Discussion and Analysis n/a TC-SI-130a.3

Figure 2: Part of the implementation-friendly technical protocol accompanying another material disclosure topic, Diversity & Inclusion, for the Software & IT Services industry

Technical Staff
All Other Employees
Technical Staff
All Other Employees
^ Other includes the classifications: Native American or Alaska Native, Native Hawaiian or Pacific Islander, and “Two or More Races”
* N/A = not available or not disclosed


Separately, SASB also provides:

  • Supporting rationale for all aspects of a reporting standard, a history of any changes and revisions to the standard, and;
  • Application guidance that lists:
    • Conditions that must be followed for disclosures to conform with standards applicable to an industry;
    • Protocols to deal with any omissions of, or modifications to, a topic or metric in the standard, and;
    • Directions for reporting governance, internal controls, and assurance.

A note on SICS, SASB’s industry classification system

Industry classification systems typically use sources of revenue as the basis for classifying companies as operating within certain sectors. In order to appropriately group companies in accordance with their industry’s specific sustainability-related risks and opportunities, including factors such as resource intensity, SASB created the Sustainable Industry Classification System (SICS). However, some companies, such as conglomerates, may want to look at SASB Standards beyond their primary industry classification, if they believe significant sustainability risks and opportunities lie outside it.

How SASB arrives at reporting standards

Figure 3: SASB’s process to set reporting standards

The three-step process that SASB employs to identity ESG topics that are financially material to an industry, and therefore useful to decisions made by investors and other stakeholders, is instructive.

Surfacing Issues: SASB staff members scour the universe of public information sources, including relevant reporting, industry publications, and notices of legal action, for potential ESG topics that fall under five Sustainability Dimensions: (1) the environment; (2) human capital; (3) social capital; (4) business model and innovation; and (5) leadership and governance.

Materiality Assessment: SASB analysts gather evidence on each topic’s impact on the operating performance and/or financial condition of the average company in the industry. Topics are mapped to specific impacts on revenue, operating costs, asset valuations, liabilities, and/or financing costs, among other financial performance areas.

Figure 4: Mapping ESG topics to impact on financial drivers

Characterizing the nature of financial impact: Valuation analysis, such as DCF modeling, covers a 5-year horizon to assess the probability and magnitude of a potential financial impact for the top and bottom deciles of performance related to sustainability factors.

Figure 5: An illustrative example of assessing material impact of ESG topics on valuation, which informs standard setting as well as demonstrates investor application

Once a topic is identified and defined through SASB’s three-step methodology, it is vetted, verified and validated.

Vetting: Materiality assessments of defined topics are presented to Industry Working Groups consisting of issuers, corporate experts, investors, and market intermediaries. A 75% approval threshold is needed to be considered for provisional inclusion in a SASB Standard.

Figure 6: Feedback on likely materiality of proposed disclosure topics (percentage of respondents by interest group who think suggested topics are likely to constitute material information)

Verification: SASB then verifies if the topics are being covered in regulatory filings, such as 10-Ks and 20-Fs, and the quality of such disclosures.

Validation: As and when sufficient data becomes available, back-testing is conducted to validate an ESG topic. A committee on metrics quality determines what will capture company performance in the topic and if it will meaningfully support financial analysis.

Implementing SASB reporting standards

SASB provides guidance on deciding the means of reporting financially material information, in its implementation guide. As we have discussed in Part II of this series, investors’ main ask is that the information be presented in a decision-useful manner. The chart below provides a breakdown of sources of SASB reporting by public companies in 2020.

Figure 7: SASB reporting, by disclosure source

Most SASB disclosure, like ESG disclosure in general, is made outside regulatory filings. It is common, as we see with the Adobe example in Figure 8, to report SASB topics and metrics alongside topics defined by reporting frameworks like GRI, the focus of which is not so much on investors alone but multiple stakeholders. However, a select few, like Etsy (Figure 9), have taken the additional step of including SASB disclosures in filings, such as 10-Ks.

Figure 8: Extract from Adobe reporting that blends SASB and GRI disclosures

Figure 9: Extract of SASB information from Etsy’s 10-K filing with the SEC

Deciding whether to report using SASB Standards involves many considerations. Fulfilling current and pending regulatory disclosure requirements under GAAP and IFRS standards are essential, of course. Consider, though, that SASB’s industry-specific standards and metrics increasingly have extensive investor-backing and find support with other market participants, such as bank analysts. Currently, the European Commission recognizes SASB Standards as a suitable framework for complying with NFR Directive disclosure obligations. Additionally, most “trillion-dollar” exchanges around the world endorse these standards for ESG reporting.

Employing SASB metrics within today’s ESG reporting frameworks

ESG reporting frameworks, such as TCFD and GRI, provide principles-based guidance on what sustainability topics should be covered and how the ESG information should be prepared and structured. These frameworks are often aimed at satisfying the information requirements of multiple stakeholders. On the other hand, SASB Standards define and require more specific, detailed, and replicable reporting requirements for what should be disclosed under each sustainability topic across reporting periods, including individual metrics that measure and gauge the impact of a company’s ESG performance on its operating results and financial condition. Accordingly, we often see SASB Standards substantially enhancing the decision-usefulness of framework-based disclosures by companies that incorporate them. To that end, SASB provides a practical perspective on using its standards when reporting through existing frameworks.

It’s also important to note that SASB metrics are already in use by more than 200 non-business entities, such as WHO, CDP, EPA, OSHA, and industry organizations such as ICAO, IPIECA, EPRI and GRESB. As such, these metrics are consistent with the corporate transparency initiatives of these organizations and help companies avoid many of the costs associated with complying with them.

Connecting SASB metrics to company strategy

The adage “you can’t manage what you can’t measure” is worth repeating. SASB topics, with metrics and links to value drivers, can help measure performance on financially material topics. In addition to investors and other stakeholders, companies themselves can use the metrics as inputs in managerial accounting to coalesce around common organizational goals and to coordinate efforts toward reaching them. This clarity of purpose enables a company to communicate expectations, motivate unit managers, and identify inefficient uses of resources to improve operational efficiency more effectively. Adopting SASB Standards also allows a company to effectively differentiate itself from competitors, helping attract more investors, customers and other stakeholders important to its long-term success.

Let’s get started!

A good place to start, if you’re a public company, is to find out what SICS industry classification you belong to (click here). Additionally, review the list of SASB reporters to learn which companies in your industry are currently using these standards for ESG reporting and how they are employing them. Of note, SASB conveniently hyperlinks reports that contain SASB disclosures so you can examine the reporting in detail.

InspIR Group, in partnership with Third Economy, help clients effectively adopt and integrate SASB Standards to report ESG performance in a way that’s useful to investors and other market participants. As a starting point, we perform peer benchmarking and undertake a bespoke materiality assessment, using SASB Standards as a foundation. Our implementation advisory services include integrating sustainability more fundamentally into existing processes and practices related to governance and strategic planning, risk and performance management, as well as investor relations.

Article by InspIR consultant Sudarshan “Sudi” Setlur, a SASB-credentialed sustainability analyst and expert in using data and analytics to optimize investor relations and corporate governance programs, and by InspIR Group.

The InspIR Group can help you understand effective ESG reporting and how it can be integrated into investor relations to compete for capital more effectively.  Call or email us if you would like to discuss customized projects to initiate or advance your journey to develop best practices in ESG reporting.

New York: Monique  +1 (212) 661-2243

São Paulo: Priscila +55 (11) 96586-9310

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