SASB: Reporting on Sustainability Metrics | In Practise

SASB: Reporting on Sustainability Metrics

Current Board Member of The Sustainability Accounting Standards Board

Learning outcomes

  • What is the biggest challenge for SASB reporting to become industry standard?
  • What is the role of investors in helping drive the adoption of SASB reporting?
  • As an investor, which metrics would you want Facebook to report under SASB?
  • What do you believe is the duty of the investor in driving the adoption of ESG reporting?
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Executive Bio

Bob Firth

Current Board Member of The Sustainability Accounting Standards Board

Bob Hirth is the immediate past chair of the Committee of Sponsoring Organizations of the Treadway Commission (COSO), having served from June 2013 to January 2018. He joined the Sustainability Accounting Standards Board (SASB) in May 2017, having previously served on the SASB Foundation’s board of directors. Hirth also served on the Standing Advisory Group of the Public Company Accounting Oversight Board (PCAOB) from 2012 to 2016. He continues to serve as a senior managing director of Protiviti, a global internal audit and business risk consulting firm. He began his career with Arthur Andersen and is a graduate of Southern Methodist University in Dallas, Texas. Read more

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Bob, it's a pleasure to have you with us today. I think a good place to start would be if you just run through the founding story of SASB and its core mission.

SASB's mission is to develop and disseminate sustainability accounting standards that help public corporations disclose material useful information to investors. That mission is accomplished through a rigorous process that includes evidence-based research and balanced stakeholder participation. Like any mission, it’s got a lot of words in there, and every word really is important. But this whole idea of, we create and then push out to the public, the sustainability accounting standards, those are different from some other standards that were focused primarily on publicly-owned corporations - corporations that are on the Stock Exchange. It's got to be information that's materially useful to investors. Then we have a whole process, like any standard center, to go through that. That's a little bit about our mission.

A few other points about SASB too, in terms of its history; we have a conceptual framework that talks about the whole way we envision sustainability standards and reporting. We have very strict rules of procedure as to how a standard is developed. All of our standards are subject to public exposure. For a 90-day period, if we come out with a new standard, we let everybody comment on it. We take those comments very seriously, and in many cases, they do result in changes. We value that process.

Can you share a bit more insight into where the SASB fits into the reporting frameworks of corporates? It's pretty clear that, if you're a public company, you have to abide by FASB's reporting standards. How does it work with SASB today?

First of all, the traditional reporting in the past has been financial reporting. Many of the students are familiar with financial statements and the audited financial statements that come out. Management reports that to their investors. The investors believe this is so important, they have to have third-party assurance in it. That structure has been in place. Many of you are familiar with the fact that the criteria used for that reporting is U.S. GAAP or IFRS. Then there are other regulations around that reporting that are developed by either the stock exchanges that those companies are on or the other regulators like the SEC. That can vary from country to country.

What's really happened with the other side of the reporting, the sustainability reporting, and ESG reporting, that is less developed. In addition to that financial information, like earnings and earnings per share and revenues, investors have used that information to value companies and look at the risk inherent in those organizations. But now they want some other information in a more formal way, and information we call ESG reporting that is all focused around environmental, social and governance information. That whole area is really developing. It's not regulated. There aren't any mandatory standards there.

The idea of SASB is the financial reporting has all been subject to consistency. Everybody uses U.S. GAAP or everybody uses IFRS. On the other side, people really aren't following any standards. The notion of SASB as I say is, in a way, end the chaos and create a set of standards, which are developed by industry, that would thus create a situation where similar companies are reporting the same information, calculated in the same way, much like the financial reporting information is there.

What's also happened lately is some companies now have reported that, using certain standards. You're actually seeing some of those companies, not all of them, actually obtain third party assurance from their accounting firm for ESG information, like they do for the financial reporting information, though the actual opinion is a little different. That's how we fit in if that makes sense to you now.

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?

If you think about financial information or our accounting standards, you report revenue, but revenue is calculated in this way. There are specific standards as to how you do that. Or depreciation, there are specific ways that you do that, and people would understand that. What SASB does, because we've used the word accounting in our name, we have what we call technical protocols. When we have a standard around greenhouse gas emissions, or the use of water, or the amount of renewable energy that a company uses, it's not just that the SASB standard says you should disclose that amount or that number. We have quite a bit of detail again, because we're an accounting standard that explains how you would calculate that information.

What I think has to happen is more investor push, and maybe we can talk a bit more about the benefit that some companies are seeing from this. But that's, to me, at the end of the day what's going to happen. Certainly, there can be regulation that would force that and there are some discussions going on at different levels, in different stock exchanges, by country in different country regulators and even in the US at the Securities and Exchange Commission level and even in the federal government of the US, where some groups have started to petition now that there be a regulation to mandate sustainability or ESG reporting. And all that sounds good.

Again, that still doesn't solve the usefulness issue, in that if you mandate that reporting on what basis is that recording going to be prepared of. For example, U.S. GAAP or IFRS are the criteria you use for that reporting Therefore, we would hope as SASB that if that reporting was mandated or just driven by investors that they use a framework like SASB, so that the information between companies is consistent, standardized, and comparable.

Does the industry rely on limited partners or asset owners to push the demand for ESG reporting?

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SASB: Reporting on Sustainability Metrics

November 26, 2019

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