8 Setting SASB Standards - Identifying Disclosure Topics and Metrics

Question 1

What is the SASB standard-setting process closely modeled after?

Answer 1

The processes employed by the FASB and IASB with some adjustments given the unique nature of sustainability disclosure

Question 2

What is the timeline of SASB’s standards setting since 2013?

Answer 2

First provisional standard was published in 2013, with additional provisional standards through 2016.
A codified update to all the Standards was published in 2018

Question 3

What are the two key governance documents of the SASB Standards?

Answer 3

-Conceptual Framework
-Rules of Procedure

Question 4

What does the SASB Conceptual Framework do?

Answer 4

Sets out the basic concepts, principles, definitions, and objectives that guide SASB in its approach to setting standards for sustainability accounting.
It additionally provides an overview of sustainability accounting, defining its objectives and audience.

Question 5

What three purposes does the Conceptual Framework serve?

Answer 5

1) it guides board members and staff who oversee and implement standard-setting activities (reducing personal bias and maintaining consistency over time)
2) it helps stakeholders better understand SASB’s approach to standard-setting
3) it helps to improve board member and staff engagement and consultation with stakeholders by providing a common language for communication

Question 6

What does the Rules of Procedure do?

Answer 6

It complements the Conceptual Framework, providing more detail about the mechanics of standards setting, as opposed to the Conceptual Framework which provides the framework for how decisions are made. The Rules of Procedure establishes and describes the policies and practices followed by the Standards Board in developing, issuing and maintaining the SASB Standards, including due process activities and the oversight role of the SASB Foundation Board.

Question 7

What are the four fundamental tenents of SASB’s approach (bottom of visual illustration of SASB’s Conceptual Framework)?

Answer 7

-Evidence-based
-Market-informed
-Industry-specific
-Transparent

Question 8

What is the “evidence-based” fundamental tenet of SASB’s approach?

Answer 8

SASB relies on robust and iterative research processes to identify evidence of investor interest and evidence of financial impact associated with sustainability topics using a range of diverse, credible sources. More specifically, SASB evaluates evidence based on underlying industry structure, regulatory environment, and financial drivers

Question 9

What is the “Market-informed” fundamental tenet of SASB’s approach?

Answer 9

SASB actively solicits input and carefully weighs the perspectives of reporting companies, investors, creditors, lenders and subject matter experts in considering which sustainability topics warrant standardized disclosure and how those topics should be disclosed.

Question 10

What is the “industry-specific” fundamental tenet of SASB’s approach?

Answer 10

Sustainability topics affect different industries in different ways, and even those issues that affect all industries have varying impacts. As a result, SASB develops sustainability disclosure standards at the industry level, focusing on issues that are closely tied to resource use, sustainability impacts, business models, regulation and other factors.

Question 11

What is the “transparent” fundamental tenet of SASB’s approach?

Answer 11

As an independent standard-setting body, transparency is essential to the quality of the standards but also to the way in which SASB conducts its standard-setting activities and communications. SASB provides stakeholders with insight into the standard-setting agenda, activities, deliberations and decisions via key communication documents, public comment periods, and public board meetings. All standard-setting projects are publicly announced and project status information is available on the SASB website.

Question 12

Because SASB Standards are industry-specific, how can investors and companies use them?

Answer 12

Investors can use them to inform the sector-allocation strategies for portfolio construction,
Companies can use them to benchmark performance against their peers

Question 13

How does the SASB Governing Bodies ensure independent oversight?

Answer 13

The Standards are developed, issued, and maintained by the SASB Standards Board, which are independent board members appointed by the SASB Foundation Board of Directors, which maintains a Standards Oversight Committee to safeguard the independence and integrity of the process. The SASB Standards Board is insulated from funding decisions made by the SASB Foundation Board of Directors

Question 14

What is the relationship of the SASB Standards Board to technical staff?

Answer 14

The technical staff - or Research Team - has analysts that monitor current and emerging sustainability risks and opportunities in an industry, propose research and standard-setting projects to the Standards Board for approval, and engage with stakeholders across the capital markets and society

Question 15

What are the five aspects of the SASB universe of sustainability issues?

Answer 15

-Environment
-Leadership & Governance
-Business Model & Innovation
-Human Capital
-Social Capital

Question 16

What are examples of the Environment aspect of SASB’s Universe of Sustainability Issues?

Answer 16

-GHG emissions
-air quality
-energy management
-water & wastewater management
-waste & hazardous materials management
-ecological impacts

Question 17

What are examples of the Leadership & Governance aspect of SASB’s Universe of Sustainability Issues?

Answer 17

-business ethics
-competitive behavior
-management of the legal & regulatory environment
-critical incident risk management
-systemic risk management

Question 18

What are examples of the Business Model & Innovation aspect of SASB’s Universe of Sustainability Issues?

Answer 18

-product design & lifecycle management
-business model resilience
-supply chain management
-materials sourcing & efficiency
-physical impacts of climate change

Question 19

What are examples of the Human Capital aspect of SASB’s Universe of Sustainability Issues?

Answer 19

-labor practices
-employee health & safety
-employee engagement, diversity & inclusion

Question 20

What are examples of the Social Capital aspect of SASB’s Universe of Sustainability Issues?

Answer 20

-human rights & community relations
-customer privacy
-data security
-access & affordability
-product quality & safety
-customer welfare
-selling practices & product labeling

Question 21

SASB’s common sources of evidence include which four areas?

Answer 21

-Company Source Material (annual reports, sustainability reports, investor earning call transcripts, proxy statements and shareholder resolutions)
-Third Party Research (industry publications and data, journals, academic research, white papers and case studies)
-Investor Insights (position papers and investment policies, coalition publications)
-Government & Legal Documents (regulatory documents and databases, legal news and litigation)

Question 22

What are the five factors in the test used to identify evidence of interest by SASB in the provisional standards prior to its being retired?

Answer 22

1) Financial impacts and risk (review of sustainability topics in documents that provide a company’s view on impacts to its financial performance)
2) Legal, regulatory and policy drivers (review of documents or legislation that provide the perspective of government and the courts)
3) Industry norms and competitive behaviors (review of sustainability reports)
4) Investor / stakeholder concerns and social trends (provide insight into investor interest and broader social and consumer trends)
5) Opportunities for innovation (innovation news or growth opportunities)

Question 23

What are the three primary financial drivers that SASB uses to assess the potential for evidence of financial impact?

Answer 23

-revenues or costs
-assets and liabilities
-cost of capital

Question 24

What are the channels of financial impact for each of the primary financial drivers?

Answer 24

Revenues - market share, new markets, pricing power

Costs - costs of revenue, R&D, CAPEX, extraordinary expenses

Assets & Liabilities - tangible assets, intangible assets, contingent liabilities and provisions, pension and other liabilities

Cost of Capital - risk premium, industry divestment risk

Question 25

What are examples of SASB Disclosure Topics for the financial driver of Revenue?

Answer 25

Demand for Core Products and Services = Health & nutrition in processed foods

Long-term growth = diverse workforce in technology

Question 26

What is an example of a SASB Disclosure Topic for the financial driver of Cost?

Answer 26

Operational efficiency / cost structure = energy-efficient chemicals production

Question 27

What is an example of a SASB Disclosure Topic for the financial driver of Assets & Liabilities?

Answer 27

Valuation of core assets & liabilities = standard assets in oil & gas

Question 28

What is an example of a SASB Disclosure Topic for the financial driver of Cost of Capital?

Answer 28

Governance, license to operate and risk = operational safety of gas pipelines

Question 29

What are the characteristics for financial impacts associated with sustainability disclosure topics?

Answer 29

-progressive or acute
-actual or potential
-near, medium or long term
-positive or negative, representing potential risks and opportunities

Question 30

Explain the dimension “progressive or acute” for financial impacts of sustainability issues

Answer 30

Acute refers to events that may be rare or unlikely, but can have a significant impact, such as extreme weather, unanticipated spills or accidents, or financial collapse from systemic risk
Progressive presents less-extreme effects in a given year, but are enduring and can erode a company’s value over time

Question 31

Explain the dimension “potential or actual” for financial impacts of sustainability issues

Answer 31

Actual impacts might materialize in the form of existing regulation and known changes in consumer demand.

Potential impacts are latent, this is due to pending regulation on sustainability issues, threats of competition from products or services that embed sustainability factors, or increased interest in sustainability performance.

Question 32

What are the characteristics of financial impact associated with energy-efficient chemical production in the Chemicals industry?

Answer 32

Progressive, near-term, positive impact as the topic is tied to costs that companies manage every day

Question 33

What are the four fundamental principles helping guide SASB’s determination of topics for disclosure? And which two are primary and which two are secondary?

Answer 33

Primary:
-Financially impactful
-Of interest to users

Secondary:
-Prevalent
-Actionable

Question 34

What does the “financially impactful” fundamental principle for the determination of topics of disclosure mean?

Answer 34

Sustainability disclosures are likely to be decision-useful to investors, lenders and other creditors when the impact of the topics can be linked to operational and/or financial performance through at least one of the following channels: 1) revenues or costs, 2) assets or liabilities, and/or 3) cost of capital or risk profile

Question 35

What does the “of interest to users” fundamental principle for the determination of topics of disclosure mean?

Answer 35

Sustainability disclosures are likely to be decision-useful to investors, lenders and other creditors when the topics identified relate to issues that they typically monitor and incorporate in their capital allocation decisions, engagement strategies, voting decisions, due diligence, and other aspects of their investment processes.

Question 36

What does the “prevalent” fundamental principle for the determination of topics of disclosure mean?

Answer 36

The decision-usefulness of sustainability disclosures is likely to be enhanced when the topics identified apply to many companies, both within a given industry and across geographies

Question 37

What does the “actionable” fundamental principle for the determination of topics of disclosure mean?

Answer 37

The decision-usefulness of sustainability disclosures is likely to be enhanced when the topics identified are captured in a way that is actionable by companies. Topics are captured in a way that is actionable when they are linked to the types of strategic and operational decisions companies make

Question 38

What are the seven characteristics of sustainability accounting metrics that build on the characteristics of sustainability disclosure topics? And which are primary, versus which are secondary?

Answer 38

Primary:
-Representationally faithful
-Complete

Secondary:
-Comparable -Neutral -Verifiable -Aligned -Understandable

Question 39

What does the “Representationally faithful” characteristic of sustainability accounting metrics refer to?

Answer 39

A metric is representationally faithful if performance on the metric correlates with performance on the disclosure topic it is intended to address

Question 40

What does the “complete” characteristic of sustainability accounting metrics refer to?

Answer 40

a set of metrics is complete if individually, or as a set, the metrics provide enough data and information to understand and interpret performance on the sustainability disclosure topic

Question 41

What does the “comparable” characteristic of sustainability accounting metrics refer to?

Answer 41

metrics are comparable if they permit users to identify which companies have similar versus different performance on a particular sustainability topic

Question 42

What does the “neutral” characteristic of sustainability accounting metrics refer to?

Answer 42

metrics are neutral if they are free from bias and value judgment, so that they yield an objective measure of performance related to the disclosure topic they are intended to address

Question 43

What does the “verifiable” characteristic of sustainability accounting metrics refer to?

Answer 43

metrics are verifiable if their calculation or production can be replicated by others who follow the same guidance. Verifiability can help support the development of effective internal controls and enable external assurance

Question 44

What does the “aligned” characteristic of sustainability accounting metrics refer to?

Answer 44

metrics are aligned if they are based on or consistent with other standards or regulations, common industry practices, or guidance already in use within an industry. Aligned metrics allow companies to use one metric for multiple reporting purposes

Question 45

What does the “understandable” characteristic of sustainability accounting metrics refer to?

Answer 45

Metrics are understandable if the primary users can understand the information encompassed by that metric and can use the metrics in their investment decisions

Question 46

Name an example of how the SASB standard harmonizes its metric with what is already in use?

Answer 46

e.g. for the Home Builders industry metric on high water stress, refers to the definition by the World Resources Institute (WRI) and the WRI Water Risk Atlas tool

Question 47

Why does SASB use a transparent, market-informed approach that is open to public comment and subject to independent oversight in developing the standards?

Answer 47

So the Standards are developed in a way that is equitable, accessible, and responsive to the needs of a variety of capital market participants. Investors want decision-useful information, reporting companies have cost-benefit questions, and other market participants want a seat at the table

Question 48

For each of the original SICS industries, SASB convened what?

Answer 48

An Industry Working Group balanced representation from corporate professionals, investors, and intermediaries.

Question 49

During the provisional phase of standard-setting, more than ____ percent of investors and issuers (on average) agreed on the likely materiality of SASB’s sustainability disclosure topics.

Answer 49

85 percent

Question 50

When a topic failed to reach at least ____ percent consensus, it was either flagged for further review or not carried forward

Answer 50

75 percent

Question 51

What are other ways SASB’s original standard-setting process relied on robust input from the market?

Answer 51

-one-on-one meetings with companies, industry associations, investors and others
-subject to a 90-day public comment period followed by an exposure draft to communicate and gather feedback on proposed changes
-consultation with members of the public and subject matter experts
-roundtables and other convenings
-public comment periods
-unsolicited input

Question 52

Today, industry expertise is incorporated into the process via the ongoing, targeted stakeholder consultation with the _____________________

Answer 52

Standard Advisory Committees’ ad hoc advisory groups

Question 53

What is the Standards Advisory Group?

Answer 53

a standing committee of volunteer industry experts from corporations, financial institutions, and thidr parties that provide ongoing feedback on the implementation and use of the standards. The SAG has approximately 175 members, each serving two-year terms

Question 54

What are the five steps of the SASB Standards Development process in order, from bringing the sustainability issues to the SASB Standard?

Answer 54

1) industry research - evidence of financial impacts
2) market input - Standards Advisory Group and Issuer, Investor Consultation
3) evidence vetting - standards board review
4) public comment - exposure drafts
5) Revisions & board approval

Question 55

Is the Sustainable Industry Classification System (SICS) unique from other industry classifications? If so, why?

Answer 55

Yes, SASB developed a unique industry classification to meet the needs of users of financially material sustainability information. The most commonly used other industry classifications systems (GICS, BICS, ICB) use financial concepts such as sources of revenue, but are often either too granular or not granular enough for understanding their shared sustainability risks and opportunities. (e.g. GICS has separate industries for hardware manufacturing, where SICS groups them together; vice versa, GICS has one industry for oil and gas consumable fuels which includes exploration, refining, marketing, and SICS breaks them out given the distinct risks and opportunities.

Question 56

Based on SASB’s research, climate change is likely to have material impacts in ____ out of 77 industries

Answer 56

69

Question 57

What is an issue specific to the Commercial Banking industry as it relates to climate change?

Answer 57

Financed emissions, or carbon embedded in a bank’s loan portfolio, an insurer’s investment portfolio, or an oil and gas company’s reserves can lead to significant loss in value; meaning that although the industry is not directly impacted by environmental concerns in a significant way, they must respond to mounting investor and regulatory pressure to monitor and managed their financed emissions.

Question 58

Simply reporting GHG emissions across the board is likely to be material disclosure in ____ of 77 industries, and why?

Answer 58

25, because it does not include event readiness, potential for stranded assets, energy intensity of the infrastructure, etc

Question 59

What are two examples of pressure points and signals for market-based approaches to mitigate and innovate on GHG emissions?

Answer 59

Energy management and Scope 2 emissions - by providing disclosure on energy management rather than scope 2 emissions, SASB standards focus on the role that big electricity consumers can play, through energy efficiency and choice of energy mix

80/20 rule - the most cost-effective climate change data addresses the largest sources of emissions: 80 percent of the effects come from 20 percent of the sources (e.g. automobiles)

Question 60

The issue of Customer Welfare occurs across ____ SICS industries and often aims to do what?

Answer 60

14 - aims to assess performance on a company’s ability to manage the public health risks and social externalities experienced as a byproduct of a core product or service

Question 61

What are the steps in SASB’s Project Based Model for updating the standards?

Answer 61

1) Project Screening
2) Research Project
3) Standard-Setting Agenda
4) Comment Period
5) Standards Update
6) Post-Implementation Review

Question 62

What are the three questions that are assessed and considered when developing a potential project for a proposed standards update?

Answer 62

1) Is the issue expected to be pervasive within an industry, across geographies, and over time?
2) Is there likely to be a feasible solution that adequately addresses the issue?
3) Does the issue warrant prioritization of resources over other alternatives? Does the technical staff, as well as the Standards Board, have sufficient capacity to address the issue?

Question 63

[CHECK FOR UNDERSTANDING] How does SASB achieve each of the four fundamental tenets to SASB’s approach to standard-setting?

Answer 63

The tenets of SASB’s approach to standard-setting are: evidence-based, market-informed, industry-specific, and transparent. SASB relies on a robust and iterative research process to identify and monitor evidence of investor interest and evidence of financial impact associated with each sustainability disclosure topic using a range of diverse and credible sources.
For the Standards to be market-informed, SASB actively solicits input and carefully weighs the perspectives of key stakeholders, including reporting companies, investors, creditors, lenders, and subject matter experts. SASB develops disclosure standards at the industry level. This is crucial, as sustainability topics affect industries in unique ways. To do this, SASB relies on the
Sustainable Industry Classification System (SICS), which categorizes industries based on resource use, sustainability impacts, business model, regulatory environment, and other factors companies share related to sustainability risks and opportunities. Transparency is embedded throughout the standard-setting process. During standard-setting, SASB
provides stakeholders with insight into the standard-setting agenda, activities, deliberations, and decisions via key communication documents, public comment periods, and public board meetings.

Question 64

[CHECK FOR UNDERSTANDING] What two documents define SASB’s governance procedures, and what purpose do they each serve?

Answer 64

SASB’s governance procedures are captured in the Conceptual Framework and Rules of Procedure. The Conceptual Framework defines the principles and characteristics of
the standard-setting process, ensuring all standards are developed consistently, providing a framework to resolve questions that emerge throughout the standard-setting process, and allowing users of the standards to understand the process and have confidence in the quality of the standards. The Rules of Procedure establishes the processes and practices followed by SASB in its standard-setting activities and in its governance and oversight of related processes and practices. The importance of these two documents is unique to standard-setting organizations. Institutions such as FASB and IASB adhere to highly similar operating models guided by a conceptual framework and transparent procedures for standards development.

Question 65

[CHECK FOR UNDERSTANDING] How do the SASB Standards evolve over time?

Answer 65

SASB implements a project-based model for standards development, meaning projects are proposed in public Board meetings at key stages in the overarching process of conducting industry research, gathering market feedback, vetting evidence, exposing a new Standard or revision for public comment, and gaining Board approval.
Proposals may be made to initiate a research project and, if research findings are promising, proposals may be made to initiate a standard-setting project. This process balancing the need for robust research with
timely outcomes