Corporate disclosure is deep-rooted in the pursuit of sustainability and the promotion of accountability while enhancing the assessment of sustainability efforts through fundamentals of sustainability accounting between companies and delivering transparency to investors and relevant stakeholders. There are various ESG guidance and frameworks for reporting and corporate disclosure, each with distinct underlying principles and perks. This piece discusses the fundamentals of one of these frameworks, the sustainable accounting Standards Board, ASB.
What is SASB?
Sustainability reporting and disclosure are gradually becoming a mainstay for investors in the decision-making process and risk assessment. The SASB is an ESG framework that establishes some standards for disclosing financial material sustainability information to investors. The SASB features ESG issues across 77 industries and is used as the disclosure standard for companies such as GM and Nike. Since its inception in 2011, it has strived to deliver industry-specific sustainability accounting standards designed for investors who require information on companies’ financial valuation.
Fundamentals of SASB standard setting
- Evidence-based standards: Fundamentals of Sustainability Accounting (SASB) standards are limited to several topics that constitute material information as it takes an evidence-based approach to determine if sustainability topics are relevant to the investors and how they affect the financial situation and performance of the companies. With this, it can focus on sustainability topics that must be included in companies’ SEC filings. The evidence of relevance to investors spans the financial impacts and risks, legal and regulatory policies, industry norms, social trends, and stakeholder concerns.
- Market-driven: Aside from the evidence-based standard setting, input from participants in the capital market is also incorporated. It considers the feedback from stakeholders’ perspectives regarding the aspects of sustainability that require a standard disclosure and how to measure these aspects.
- Industry-specific: To assess the materiality of sustainability information, the SASB hinges on understanding the impact of businesses in society and the environment and the impact of sustainability challenges on organizations. With these, sustainability standards are formulated to be specific to industries by incorporating business models and factors related to specific industries.
Components of the SASB standard framework
- General disclosure guidance: The standards give guidance for users of SASB and include the reporting format, the limitations, and the general scope. It also highlights sustainability topics across industry levels.
- Industry Description: Fundamentals of Sustainability Accounting (SASB) standard explains the industry that is the subject of the standard and contains assumptions about industry segments and business models.
- Topic and topic description: The standard also describes how managing various aspects of the topic may affect value creation.
- Sustainability Accounting Metrics: In the SASB standard, companies are provided with quantitative and qualitative metrics aimed at measuring performance on disclosure topics or aspects of these topics; it is usually a component with a description of material factors to confirm accuracy and completeness.
Benefits of the SASB reporting framework
- Provide companies with tools for identifying sustainability areas that are relevant and reportable.
- Integrate sustainability reporting with financial reporting.
- Provides data that is adequate for benchmarking and evaluating performance.
- Enables companies to develop strategies around the most relevant material issues for the industry.
- Builds trust and collaborative business-to-business relationships.
The SASB standards provide a major foundation for promoting sustainability for corporates and investment purposes. It also contributes to improving organizations’ communication on matters related to sustainability. Recognizing the unique benefits of this framework and seeking more depth on sustainability reporting, SASB has been combined with the integrated reporting framework as a part of the Value Reporting Foundation