What Are SASB Standards?
SASB standards are a set of industry-specific disclosure guidelines designed to help companies report financially material environmental, social, and governance (ESG) information to investors and other providers of financial capital. They fall under the broader category of sustainability accounting and reporting, aiming to standardize how businesses communicate their ESG impacts that are likely to affect their financial performance. Unlike broader sustainability frameworks, SASB standards focus on issues deemed financially significant, enabling better comparability and decision-making for market participants.
History and Origin
The Sustainability Accounting Standards Board (SASB) was founded in 2011 by Jean Rogers with the mission to develop sustainability accounting standards. The organization aimed to address the growing need for standardized ESG data, particularly as investors increasingly recognized the impact of non-financial factors on corporate value13. In June 2021, SASB merged with the International Integrated Reporting Council (IIRC) to form the Value Reporting Foundation (VRF)12. This consolidation was a significant step towards simplifying the fragmented corporate reporting landscape. Subsequently, in August 2022, the International Sustainability Standards Board (ISSB) assumed responsibility for the SASB standards when the VRF merged with the IFRS Foundation11. The ISSB continues to maintain and enhance these standards, encouraging their ongoing use by companies worldwide10.
Key Takeaways
- SASB standards provide industry-specific guidance for disclosing financially material sustainability information.
- They focus on ESG issues that are reasonably likely to affect a company's financial condition or operating performance.
- The standards cover 77 industries across 11 sectors, ensuring tailored relevance.
- SASB standards are designed primarily for investors to incorporate ESG factors into their investment and risk management decisions.
- The International Sustainability Standards Board (ISSB), under the IFRS Foundation, now oversees the SASB standards.
Interpreting the SASB Standards
Interpreting SASB standards involves understanding their core principle of financial materiality. Each of the 77 industry-specific standards identifies a subset of sustainability issues that are most relevant to the financial performance and long-term value creation for a typical company within that industry. This means that companies applying SASB standards will disclose quantitative and qualitative data on topics such as energy management, water usage, labor practices, and business ethics, but only those that directly impact their financial statements or competitive position9. For instance, a technology company's most material issues might differ significantly from those of a mining company. Investors use these disclosures to assess a company's exposure to sustainability-related risks and opportunities, informing their asset management and corporate governance decisions.
Hypothetical Example
Consider two hypothetical companies: GreenPower Inc., a renewable energy provider, and UrbanBuild Co., a real estate development firm. Both decide to implement SASB standards for their sustainability reporting.
For GreenPower Inc., the relevant SASB standards for the renewable energy industry would likely highlight metrics related to:
- Operational Eco-Efficiency: Such as renewable energy generated (MWh), greenhouse gas emissions (Scope 1 and 2), and waste generation.
- Resource Management: Including water intensity and land use.
- Business Model & Innovation: Reporting on R&D investment in new energy technologies or battery storage.
For UrbanBuild Co., adhering to the real estate industry SASB standards would focus on:
- Environmental Impacts: Metrics like energy consumption of buildings, water efficiency of properties, and waste diversion rates during construction.
- Social Capital: Potentially covering community engagement practices, affordable housing initiatives, or tenant satisfaction.
- Human Capital: Such as employee safety incident rates and workforce diversity.
In this example, while both companies are committed to sustainability, the specific SASB standards guide them to report on distinct, financially material issues pertinent to their respective operations, allowing investors to make relevant comparisons within each sector.
Practical Applications
SASB standards serve several practical applications in the financial world. They are widely used by companies to enhance their disclosure of ESG information, making it more consistent and comparable for investors8. For example, a company like ReNew, a clean energy firm, references SASB standards in its integrated reports to provide relevant sustainability insights7.
Regulatory bodies, such as the U.S. Securities and Exchange Commission (SEC), have also engaged with SASB, considering how these standards can support more effective sustainability-related financial disclosure6. SASB standards help companies identify and communicate sustainability risks and opportunities that are most likely to affect their financial condition or operating performance. This focus assists investors in integrating sustainability considerations into their investment decisions and portfolio analysis.
Limitations and Criticisms
Despite their advantages, SASB standards have some limitations and have faced criticisms. A primary critique centers on their strict focus on financial materiality, which means they prioritize sustainability issues that directly impact a company's financial performance or enterprise value5. While this investor-centric approach provides decision-useful information for financial markets, it may exclude broader environmental and social impacts that are significant from a wider stakeholder perspective but not immediately financially material. Critics argue that this narrow scope might not fully capture a company's comprehensive impact on society and the environment, potentially leading to less holistic sustainability reporting for some users4.
Another challenge can be the initial effort required for companies to adapt their internal data collection systems to align with the specific metrics outlined in SASB standards. While the standards aim for cost-effectiveness, the implementation process may necessitate new processes or technologies to ensure accurate and verifiable data3.
SASB Standards vs. GRI Standards
SASB standards and GRI Standards are two prominent frameworks in sustainability reporting, often considered complementary rather than mutually exclusive. The key difference lies in their approach to materiality and their primary audience.
| Feature | SASB Standards | GRI Standards |
|---|---|---|
| Primary Audience | Investors and other providers of financial capital. | A broad range of stakeholders, including investors, employees, communities, and civil society. |
| Materiality Focus | Financial Materiality: Focuses on sustainability issues that are reasonably likely to affect a company's financial condition or operating performance. | Impact Materiality: Focuses on the company's significant impacts on the economy, environment, and people. |
| Specificity | Industry-specific standards for 77 industries. | Universal standards applicable to all organizations, with optional sector and topic-specific disclosures. |
| Goal | Enable comparable and decision-useful disclosure for investment and risk management. | Foster transparency and accountability on a company's impacts, supporting sustainable development. |
Many companies use both SASB standards and GRI standards in an integrated reporting approach to meet the diverse information needs of their various stakeholders2.
FAQs
What does SASB stand for?
SASB stands for the Sustainability Accounting Standards Board. It is the organization that originally developed the SASB standards.
Are SASB standards mandatory?
Currently, SASB standards are not universally mandatory. Their adoption is largely voluntary, though regulatory bodies and investors increasingly encourage their use for disclosure of financially material sustainability information.
How many industries do SASB standards cover?
SASB standards provide specific guidance for 77 distinct industries, categorized across 11 sectors.
How do SASB standards help investors?
SASB standards help investors by providing consistent, comparable, and reliable data on the sustainability-related risks and opportunities that are likely to affect a company's cash flows, access to finance, and cost of capital. This enables better investment decisions and ESG integration.
What is the relationship between SASB and the IFRS Foundation?
In August 2022, the International Sustainability Standards Board (ISSB) of the IFRS Foundation assumed responsibility for the SASB standards. The ISSB is committed to maintaining and evolving the SASB standards, which also serve as a source of industry-based guidance for the ISSB's own sustainability disclosure standards1.