ESG versus Financial Reporting

What are the major challenges that SASB has in standardizing sustainability reporting?

The biggest challenge we have all the time, that will determine if we're effective or not is, do people use our standards? Do they use nothing? Do they use someone else's standards? One of the challenges we have is getting everybody on board. Obviously, investors want this information. In many cases, they're not just requesting it, they're demanding it. Just like they use financial information to value a company, they believe they need this other information to do a complete valuation and evaluation of the company. There's an investor demand side that wants everything.

Remember, the victims of that discussion and viewpoint are the companies themselves, the organizations that have to report to satisfy the investor. On one side, you have the investors wanting a lot of everything and the companies, in some cases, being a little reluctant to provide that information or all that information. Some of the reasons why they are reluctant to do that is, it's going to take more time, and time costs money. There are some views that you need to be careful about the information that you provide, because there could be some legal issues related to that. There even could be some competitive disadvantage to reporting all of that information and the like. The challenge we have is really taking those two views and coming to a compromise.

One of the things that I think we do well at SASB is we spend a lot of time listening to investors as to what they want and why. At the same time, we spend a lot of time with the companies that have to produce that information.

Another concern also is, if you think about it, the financial information that's been reported for many, many years are all part of rigorous internal control and information systems. The ESG reporting that goes on now at many companies hasn't been that well developed. Another concern is the actual accuracy of the information that's provided. If you were to provide what is determined to be inaccurate information, again, you'd have some legalized ability. Hopefully that answers your question.

I'm just thinking of the financial accounting. Correct me if I'm wrong, but I believe this came into action in the 1930s, or even just slightly before or after the war, due scams in the public market. What do you think it's going to take for it to really become not enforced, but to similar standards as the financial standards reporting?

Just to give you color on that, you're right. At least in the US, the Securities and Exchange Commission came out in 1930s, because investors were being fooled and companies were reporting bad information. That's the whole investor protection concept. I think, again, back to my point, investors will drive the ultimate reporting. Investors in public companies own those companies. Companies pay attention to their owners. And I believe if investors continue to push that they want this information, that they have to have it, that it'll be forthcoming.

The trick then, as I mentioned is, is that reporting all consistent and similar? One group is reporting greenhouse gas emissions and another company doesn't report that; that's a problem. Or another company does report it, do they report it on the same basis?