In today’s business community, undertaking Environmental, Social, and Governance (ESG) reporting isn’t just about good corporate citizenship. In fact, ESG reports are now a key component of annual reporting, with the contents playing a critical role in how lenders and investors make their decisions.
As anyone who has tried to introduce ESG reporting knows, however, this can be a time consuming process with a steep learning curve for organizations just starting out.
Sometimes it feels like the ESG team spends the whole year writing a report that complies with the appropriate standards, and doesn’t have time to actually make meaningful steps toward achieving the goals they’ve so painstakingly documented in their report.
With so many ESG standards and methodologies to choose from, it’s hard to know which to pick. You want one that will deliver meaningful and comparable data for investors and financial institutions, but also doesn’t include considerations and disclosures that aren’t appropriate to your industry which will only waste time compiling the report.
The SASB Standards aim to offer a solution. These industry-specific standards have been developed by the Sustainability Accounting Standards Board to streamline ESG reporting and reduce the administrative burden so that companies only report on what is material to their operations – ultimately giving you more time to run your business and achieve your ESG goals.
What are SASB Standards?
Designed to offer a framework for environmental, social and governance reporting, the SASB Standards are a group of industry focused standards. They identify sustainability issues that can impact the financial performance and enterprise value of organizations in over 70 different sectors.
Within the standards, there are 6 disclosure topics and various accounting metrics which are applied across five key aspects of sustainability—environment, social capital, human capital, business model and innovation, and leadership and governance.
As of 2022, the International Sustainability Standards Board (ISSB) of the IFRS Foundation assumed responsibility for the SASB Standards. As such, the SASB Standards play an important role in the first two IFRS Sustainability Disclosure Standards, IFRS S1 General Requirements for Sustainability-related Disclosures and IFRS S2 Climate-related Disclosures.
The IFRS Foundation may already be familiar to many corporations, as they are also the umbrella organization for the International Accounting Standards Board, whose standards for financial reporting are followed in 140 jurisdictions around the world.
How Do Investors Use SASB Data?
As ESG reporting becomes more closely integrated with financial reporting, investors, lenders, and financial institutions are demanding greater consolidation so they can more easily compare data from one company to the next.
Investors can use this information to drive ongoing business decisions, select new partners, and identify areas of risk within their portfolio. In this way, SASB reports and data can be used to:
- Compare performance year over year and across industries
- Identify areas, companies, and partners requiring greater engagement
- Expand the way equity decisions are made to include factors beyond financial statements
- Assess risk and grow the definition of risk to include sustainability
- Better understand industry-specific risks and how these can be managed
Ultimately, as investors seek a more holistic view of business operations, a balance sheet is no longer the only deciding factor. Investors expect high-quality and comparable ESG reports to inform their choices.
Who Reports Using SASB Frameworks?
The SASB Standards set out ESG reporting requirements for 77 different industries, which are grouped under 11 headings:
- Consumer Goods
- Extractives & Minerals Processing
- Financials
- Food & Beverage
- Health Care
- Infrastructure
- Renewable Resources & Alternative Energy
- Resource Transformation
- Services
- Technology & Communications
- Transportation
The industries are set by Sustainable Industry Classification System (SICS) Codes and the SASB website includes lookup tools to determine which industry code is the most appropriate for your organization, as well as guidance for companies who may have more than one SICS Code for their operations.
What Is Reported Under SASB Standards?
The SASB Standards work to group sustainability topics into five “sustainability dimensions”, as follows:
- Environment
- GHG Emissions
- Air Quality
- Energy Management
- Water & Wastewater Management
- Waste & Hazardous Materials Management
- Ecological Impacts
- Social Capital
- Human Rights & Community Relations
- Customer Privacy
- Data Security
- Access & Affordability
- Product Quality & Safety
- Customer Welfare
- Selling Practices & Product Labeling
- Human Capital
- Labor Practices
- Employee Health & Safety
- Employee Engagement, Diversity & Inclusion
- Business Model & Innovation
- Product Design & Lifecycle Management
- Business Model Resilience
- Supply Chain Management
- Materials Sourcing & Efficiency
- Physical Impacts of Climate Change
- Leadership & Governance
- Business Ethics
- Competitive Behavior
- Management of the Legal & Regulatory Environment
- Critical Incident Risk Management
- Systemic Risk Management
Of course, the specific activities that drive long-term value creation will vary from one industry to the next, so within the SASB frameworks, these disclosures are further broken down in order to be relevant to each industry. For example, in the area of product quality & safety, a footwear manufacturer might report on management of chemicals in its products, while a pharmaceutical company might report on clinical trials and regulatory approval.
Additional guidance on how to interpret the disclosures is provided in each of the 77 industry-specific standards.
Using the SASB Materiality Finder Tool
While comparability is a key consideration in ESG reporting, both in terms of year-over-year data and from one organization to the next, not all industries face the same ESG risks or can embrace the same ESG opportunities. This is why there are so many industry-specific SASB standards.
Identifying the parts of any ESG standard that are material to your organization is a critical part of ensuring the final report offers useful insights to users, and also keeps your ESG team from wasting valuable time and resources collecting information in areas that won’t bring about significant change or improvement.
For example, an ESG report for a minerals and mining company will look significantly different than one for an advertising and marketing agency. The mining company will spend a lot of time looking at environmental elements like greenhouse gases, air, and water emissions. The ad agency might focus more closely in areas like employment equity and data security.
To help identify the issues that matter to your organization, the SASB website includes a Materiality Finder. This tool allows you to either look through the list of 77 industries, or search for your own based on keywords. It will then provide a detailed list of the disclosures that are expected to be most material to your industry and provide information on what is typically reported under each of the General Disclosure headings.
Using the Materiality Finder can significantly streamline your data collection and reporting efforts. According to the SASB website, of the 26 total disclosures in the standards, each industry-specific standard only includes an average of six material disclosure topics. Compared to using other industry-agnostic ESG frameworks, this offers a much more tailored reporting methodology.
Of course, not every business within the same industry is identical, and many companies may find their operations fall under more than one industry. While the materiality finder is a great way to start defining the scope of your ESG program, you should take a moment to consider the other disclosures and whether there are risks and opportunities unique to your business that should also be included in the report.
What Is Included In a SASB Standard?
With 77 different industry-specific standards, the complete content of each standard will depend on the industry and the material disclosures. In general, however, each standard includes the following:
- Disclosure topics: these are the areas under which risks and opportunities most likely to affect the organization’s value creation have been identified.
- Accounting metrics: These are the quantitative and qualitative metrics through which a company will evaluate its performance for each of the material disclosure topics.
- Technical protocols: Using an ESG framework like the SASB Standards means following verified and science-based methodologies that can be verified by third parties. The technical protocols provide guidance on definitions, scope, implementation, compilation and presentation for each accounting metric.
- Activity metrics: These metrics are about the scale of the company’s business, which provides important context for assessing the data provided in the accounting metrics.
Using SASB Standards – An Industry Example
The best way to understand how the SASB Materiality Finder and industry-specific standards work together is to spend a little time exploring the website. In essence, the Materiality Finder breaks down general disclosures into industry-specific topics, and then the standard provides additional information on these topics, as well as the appropriate accounting metrics, technical protocols and activity metrics.
Below is an example of how a company in the building products and furnishings industry would use the Materiality Finder and the appropriate industry-specific standard.
According to the Materiality Finder, there are four relevant issues included in the industry-specific standard for building products and furnishings. These are:
- Environment – Energy management
- Social capital – Product quality and safety
- Business model & innovation – Product design and lifecycle management
- Business model & innovation – Supply chain management
To prepare a report following the building products and furnishings standard, these are the issues that must be addressed. If an organization has also identified material risks or opportunities related to, say, employee health and safety, this could also be included in the report, but this isn’t necessary to deem the report compliant with the standard.
Now that the material issues have been defined, the materiality finder provides additional detail as to what would typically be discussed by a company in the building products and furnishing industry. Let’s take a look at what might be included.
Energy Management
Under energy management, organizations should look at the electricity purchased to power manufacturing processes. Risks related to rising energy costs for fossil fuels should be evaluated, as well as opportunities to switch to renewable energy sources.
Because the building products and furnishings industry typically operates on tight profit margins, finding opportunities for energy cost savings can have a significant benefit to overall annual financial performance.
Product Quality & Safety
In the building products and furnishings industry, the focus on product quality and safety is often closely tied to the management of chemicals in finished products. Significant progress has been made over the last few decades to find lower-risk products, such as low-VOC coatings, or to reformulate products like plastics to contain less reproductive toxins or endocrine disruptors.
Still, this isn’t an area that should be overlooked, because the regulatory landscape continues to change, and consumer demand for safe and green products continues to grow. Programs like LEED, which many building product customers participate in, are also driving the push towards sustainable materials. These are all opportunities to be documented in this part of the report.
Product Design & Lifecycle Management
The building products industry is no stranger to scrutiny on materials management. Everything from raw materials sourcing to transportation (both pre- and post-production) and end of life disposal is part of the conversation and should be included in your ESG report.
Many companies may already be part of product lifecycle certification programs, which means many of the questions to consider under the industry-specific standard may already have documented answers that can be referred to in the report.
Supply Chain Management
For building products and furnishings companies, this disclosure relates specifically to wood supply chain management. Risks and opportunities related to sustainable wood harvesting can have both social and environmental impacts, as well as legal ramifications.
As with product lifecycle management, many organizations now belong to third-party certification programs to document the sustainability of their wood growth and harvesting. This can help build the necessary documentation for your ESG report, while also meeting consumer demand.
Accounting Metrics
Once you have determined the reporting topics using the materiality finder, the next thing to do is to refer to the industry-specific standard to determine the accounting metrics on which to report. For the building products and furnishings industry, these are:
- Energy management
- Total energy consumed
- Percentage of the total that was grid electricity
- Percentage of the total that was renewable energy
- Product quality & safety
- Discuss processes to assess and manage risks and hazards of chemical in products
- Quantify the percent of products meeting VOC emission and product standards
- Product design & lifecycle management
- Describe processes to manage product life cycle impacts
- Calculate the weight of end-of-life materials recovered and recycled
- Supply chain management
- Quantify the weight of wood fiber materials purchased and the percentage that comes from third-party certified forestlands or other certified wood fiber standards
Activity Metrics
Activity metrics give the end reader a sense of scale of the operation, which helps when comparing data between reports. For the building products and furnishings industry, these are the annual production figures, usually in units like weight or square feet, and the area of manufacturing facilities, including both manufacturing and administrative operations.
Why Use SASB Standards for ESG Reporting?
Despite ongoing consolidation of ESG standards, it can still feel like there are many frameworks to choose from. There are, however, several benefits of opting to report using the SASB frameworks including:
- Investor-grade data – If you’re planning to use ESG reporting to inform investors, lenders, and financial institutions, they expect high-quality and comparable data. With SASB now under the IFRS umbrella and becoming more closely integrated with existing IASB standards, expect SASB to become the de facto standard for many investors around the world.
- Cost-effective reporting – ESG reporting can be time consuming and labor intensive. Data gathering and annual updates require resources and expertise. The focus on industry-specific standards and SASB’s materiality tools mean you’re not wasting time gathering data and preparing reports that have no relevance to your organization’s performance.
- Overlap with other standards – Even with consolidation, there may still be a need to prepare ESG reports complying with different standards to meet, for example, varying investor and legislator needs. The SASB standards integrate well with other ESG frameworks including TCFD, IIRC, and GRI.
If you’re ready to dive into the SASB industry-specific standards and want to streamline your ESG program with automated data capture and framework focused reporting, get in touch with an AMCS sustainability software advisor today.