7 Introduction to the SASB Standards

Question 1

What are three ways that standards help society?

Answer 1

1) contribute to improved economic efficiency by reducing variety and improving compatibility which fosters markets
2) reduce information asymmetry between buyers and producers which helps limit market failures (e.g. a kilogram is a kilogram)
3) promote trade by reducing barriers to access new markets (e.g. pricing structure for a kilogram between countries)

Question 2

The usefulness of sustainability disclosure can be assessed in part based on its categorization as one of what three disclosure types

Answer 2

-boilerplate
-company-tailored narrative
-performance metrics

Question 3

What is “boilerplate”?

Answer 3

A large number of disclosures contain boilerplate language, broad, nonspecific wording that does not describe the realities of the registrant’s particular operating context and could apply to multiple companies and/or a variety of industries

Question 4

What is company-tailored narrative?

Answer 4

More useful than boilerplate language, a company-tailored narrative provides disclosure using specific language that can be understood only in the context of the reporting company. It reflects the company’s unique circumstance and lends insight into such areas as past performance, future targets, and individual risk / opportunity management strategies

Question 5

What is the benefit of performance metrics?

Answer 5

In the absence of standardized data about material sustainability topics, investors are challenged to make informed decisions with inconsistent and incomplete information. Research shows that when a topic is not effectively disclosed using performance metrics that can be compared to company peers, and instead are buried underneath boilerplate language that is not decision-useful, analysts have less certainty about its impact on valuation and therefore its risk to shareholders.

Question 6

What are the three guiding, primary objectives of SASB Standards?

Answer 6

-financially material
-decision-useful
-cost-effective

Question 7

How does SASB define financially material?

Answer 7

information is financially material if omitting, misstating, or obscuring it could reasonably be expected to influence investment or lending decisions that users make on the basis of their assessments of short-, medium-, and long-term financial performance and enterprise value

Question 8

How does the objective of “financially material” benefit?

Answer 8

Unwavering focus on financially material sustainability topics can add value to existing reporting practices, and help addresses the problem of “disclosure overload” and raising the signal-to-noise ratio for investors. It also helps surface what is most useful for management, informs annual reporting efforts, satisfies most public regulatory financial filings, and improves cost-effectiveness for reporting companies.

Question 9

What must the SASB Standards closely consider for sustainability disclosures to be decision-useful?

Answer 9

the needs of the primary users of the information and yield qualitative and quantitative data that will help users assess a business’s operating performance and financial condition.
e.g. if you report only a policy, that does not give insight into how the company is doing without performance-based information

Question 10

What is the SASB Standards objective related to cost-effective?

Answer 10

explicitly takes cost-effectiveness into account throughout the standards setting process aiming to establish standards for which the benefits of using the Standards exceeds or at least justifies, the costs of implementation. SASB takes into account whether data is already being collected by most companies or could be collected in a timely manner and with reasonable cost, and aligns to the extent possible with metrics in other reporting standards or regulations

Question 11

What is an example of how cost-effectiveness counterbalances decision-useful?

Answer 11

For diversity & inclusion data, investors may find it most useful if broken down by location and compared with the surrounding area, but for companies with large operations and many offices around the world, that location-based D&I performance data may be overly burdensome and costly.

Question 12

Which two objectives are closely related?

Answer 12

Financial materiality and cost-effectiveness. Surfacing the minimum set of topics that are likely to constitute material information for companies in a given industry minimizes cost while focusing on sustainability issues that could impact enterprise value

Question 13

Why does the SASB focus on analyzing industries ensure international relevance on an ongoing basis?

Answer 13

Industries, unlike geographies, are generally consistent across the globe. For example the effects of energy management are largely universal

Question 14

What are two examples where a metric may not be internationally applicable?

Answer 14

• e.g. diversity and inclusion categories in North America may be different than other geographies
  -e.g. U.S. based commercial banks tie improving financial literacy to banks performance on Financial Inclusion & Capacity Building requirements where other jurisdictions may not be connected to financial literacy

Question 15

What is an example of a localized, jurisdiction-specific reference provided in the Standard to support flexible implementation?

Answer 15

-e.g. Electronic Manufacturing Services & Original Design Manufacturing Services industry for waste management performance metric relies on the EU Waste Framework Directive to define “hazardous waste”

Question 16

What are the six core objectives of SASB standards in the information structure? (i.e. from top to bottom)

Answer 16

• Sectors
  -Industries
  -Sustainability Dimensions
  -General Issue Categories
  -Disclosure Topics
  -Metrics

Question 17

What are Sectors and Industries based on?

Answer 17

SASB’s Sustainable Industry Classification System (SICS)

Question 18

What are Sustainability Dimensions based on?

Answer 18

broad sustainability themes including Environment, Social Capital, Human Capital, Business Model & Innovation, and Leadership & Governance

Question 19

What is General Issue Categories based on?

Answer 19

industry-agnostic and cross-cutting themes that allow companies across sectors / industries

Question 20

What are Disclosure Topics based on?

Answer 20

industry-specific and tailored versions of the General Issue Categories that are reasonably likely to have financially material impacts on companies participating in an industry

Question 21

What are Metrics based on?

Answer 21

Accounting Metrics are quantitative and qualitative indicators created to measure performance on each disclosure topic. technical protocols exist for each metric

Question 22

At the highest level, how many sectors and industries are there?

Answer 22

11 Sectors composed of 77 industries

Question 23

What is an example of how General Issue Category and Disclosure Topic relate?

Answer 23

e.g. General Issue Category of “Customer Welfare” cuts across industries and can show up as the Disclosure Topics of Health & Nutrition in the food / restaurant industry, but also as Counterfeit Drugs in the pharmaceutical industry or Quality of Education & Gainful Employment in the Education industry.

Question 24

What is the average number of disclosure topics for each standard?

Answer 24

6, although some have as few as 2 topics and other as many as 12. All together there are hundreds of disclosure topics

Question 25

What are the two types of accounting metrics in the SASB standard?

Answer 25

-quantitative metrics
-discussion and analysis (D&A) metrics

Question 26

What is the difference between SASB’s accounting metrics and activity metrics?

Answer 26

-Accounting metrics are a set of quantitative and/or discussion and analysis metrics intended to measure performance on a sustainability topic
-Activity metrics are metrics that quantify the scale of the company’s business and are intended for use in conjunction with accounting metrics to normalize data and facilitate comparison

Question 27

For each accounting metric, the technical protocol does what?

Answer 27

provides guidance on definitions, scope, implementation, compilation, and presentation that can be applied by both report preparers and report users. They provide multiple clarification points for each metric and explain which data are included in the scope of the metric

Question 28

[CHECK FOR UNDERSTANDING] What are the three primary objectives of the SASB Standards, and how is the standard-setting process designed to meet those objectives?

Answer 28

SASB Standards yield information that is financially material, decision-useful, and
cost-effective. To meet the objective of financial materiality, SASB relies on a robust and iterative research process that assesses evidence of financial impact for each sustainability topic that appears in the Standards. This includes the assessment of a sustainability topic’s impact on revenues or costs, assets and liabilities, and cost of capital. To meet the objective of decision-usefulness, SASB assesses each disclosure topic and associated metrics according to a range of characteristics that together constitute decision-useful information. Namely, each disclosure topic is assessed for financial impact, level of interest in the topic among providers of capital (including how it relates to information they typically use and monitor), prevalence among companies in an industry, and how actionable the information is for company management. Metrics are additionally assessed to ensure they faithfully represent topic performance, provide a complete set of information to
interpret performance, are comparable between companies and over time, are
neutral and free from bias, are verifiable and can be replicated by others following the
same guidance, are aligned with existing industry standards and best practices, and
are understandable when incorporated into investment decisions.
To meet the objective of cost-effectiveness, the standards-development process balances feedback from key stakeholders, including reporting companies who provide insight into the costs associated with the disclosure of specific topics and the Standards collectively. When developing disclosure metrics, SASB considers if the information is already being collected by companies or if
it could be collected in a timely manner and at a reasonable cost, aligning with existing
disclosure practices where possible. The objective of financial materiality also directly supports the objective of cost-effectiveness.
The Standards are meant to surface the minimum set of disclosure topics that are likely to be financially material to companies in a given industry, helping companies avoid generating excess information that is not decision-useful.

Question 29

[CHECK FOR UNDERSTANDING] What are disclosure topics in a SASB Standard, and what purpose do they serve?

Answer 29

Disclosure topics are the topics in each SASB Standard that are likely to have financially material impacts on a company in a given industry. They represent the industry-specific impacts of General Issue Categories (G.I.C.s). SASB accounting metrics are used to measure company performance on a disclosure topic.

Question 30

[CHECK FOR UNDERSTANDING] What are the different types of metrics in a SASB Standard, and what purpose do they each serve?

Answer 30

There are two types of SASB metrics:
accounting metrics and activity metrics. Accounting metrics can be either quantitative or narrative-based discussion and
analysis (D&A). Quantitative sustainability accounting metrics are useful to companies as KPIs and benchmarks, and highly useful to investment professionals in fundamental and comparative analysis. Meanwhile, discussion and analysis metrics provide key context where quantitative data might not provide useful insight into future performance on its own. Activity metrics, on the other hand, do not measure performance on a particular disclosure topic. Rather, they are used to quantify the scale of a business to support comparative analysis and are intended to be used in conjunction with accounting metrics.