The corporate sustainability/ responsibility field is evolving rapidly into a data and performance-driven discipline. About 20 years ago, sustainability was a little-known term, and most companies only looked at social and environmental issues from a legal angle. Today, over 90% of fortune 100 companies and many mid-sized firms voluntarily disclose their sustainability performance.
One of the methods that companies can use to report on sustainability is the Sustainability Accounting Standards Board (SASB) framework. This post takes a closer look at the application and importance of SASB certification.
The Sustainability Accounting Standards Board (SASB) is one of the popular environmental, social, and governance (ESG) guidance frameworks that set standards for disclosing financial material sustainability by businesses to their stakeholders.
More companies are looking for ways to quantify corporate sustainability using comparable metrics that promote long-term global sustainability. To help them achieve what their stakeholders want, SASB connects investors and businesses to help them understand more about the financial impacts of sustainability. It uses standards that enable businesses to identify, manage and communicate material sustainability.
The standards set by SASB are industry-specific and meant to help with making decisions that are affordable and useful for investors. Whether a company is new or has been in operation for some time, SASB certification comes with benefits that can help them move to the next level.
SASB standards are created for investors targeting to access sustainability information that is crucial to the financial valuations of a business. Companies all over the globe utilize these standards to identify and share their performance with investors and other stakeholders using various channels, such as corporate sustainability reports.
SASB notes that material sustainability issues are different in various industries. Take the example of water use. Well, it is a serious issue for the processing industry but irrelevant for the insurance sector. To help promote the adoption of environmental, social, and governance (ESG) reporting, SASB created independent standards for every industry. Today, they have a comprehensive set of standards, more than 77, covering over 26 ESG issue categories.
In its approach to standard-setting, SASB uses a set of principles that help to facilitate sustainability disclosures. Here are the main ones:
· Financial materiality: SASB indicates that all the standards focus on financial material issues because the primary mission is to assist enterprises across the globe in targeting investors.
· Global applicability: This means that the information should be reliable, relevant, and comparable across companies in the same industry on the globe.
· Approach to standard-setting: This principle can be broken further into three main points:
(i) Industry-specific: This focus is rooted in the fact that sustainability issues in different industries are different. Some companies might have a greater impact on climate change and others on water issues. SASB certification for the two must be different.
(ii) Evidence-based: The standards outlined by SASB are created to generate comparable data that investors can use to make the decision about the company.
(iii) Market-Informed: This focus has been described as “SASB’s DNA” because it indicates the standards are geared to help strike a balance of perspectives of subject matter experts, corporate professionals, and investors.
In September 2020, a shared vision was announced by five sustainability reporting and standard selling organizations, including SASB, GRI, IIRC, CDSB, and CDP. They indicated that they were working towards a comprehensive corporate reporting model that factors sustainability disclosure and financial accounting, which are connected through integrated reporting. Through a joint statement, they pointed how the current standards, especially on sustainability reporting, can complement the globally accepted accounting reporting standards.
The five frameworks and standards can be considered important building blocks that can help develop information disclosure systems based on stakeholders' needs. Businesses can use SASB standards as tools for implementing a principles-based framework, especially the one recommended by the Task Force for Climate-related Financial Disclosures (TCFD). Again, SASB standards allow for robust application of integrated reporting framework, helping to enhance comparability for investors.
SASB and IIRC also announced their intention for a merger and to create a unified organization referred to as Value Reporting Foundation. The two entities aim at enterprise value creation by simplifying the corporate reporting landscape. This merger was formalized in June 2021. Now, the resources of the new organization, which include integrated thinking principles, the SASB standards, and the Integrated Reporting Framework, can be used either independently or in combination based on individual business needs for SASB certification.
Once you have grasped the SASB principles, it is time to get down to the implementation. This can be summarized into the following seven steps:
· Start By Establishing Foundation
To effectively implement SASB standards, it might be necessary to think of how to integrate the concept of sustainability more intrinsically. This means that you need to look at the practices and processes of governance, strategic planning, performance management, and risk management to determine areas of focus for improved sustainability.
· Select the Right Tools
For your reporting to be effective, it is important to identify the targeted audience and determine the sustainability information that they need. The SASB standards are created to help address the requirements of investors, especially creditors and shareholders. SASB standards can be used for this role, whether alone or alongside other frameworks.
· Determine Where to Disclose
Because the SASB framework is designed with a focus on investors, how exactly do you intend to communicate to them? Some companies opt to provide the SASB data via integrated reports, while others prefer the annual reports to shareholders or sustainability reports. You might also want to provide a stand-alone SASB report.
· Gauge Your Readiness
It is not uncommon to get some companies getting started with the SASB reporting journey only to discover that they do not have all the needed information. This is why you should start with a comprehensive evaluation process by comparing current metrics to SASB standards and internal controls. The goal is to ensure the process will run as smoothly as possible and deliver the targeted impact and report.
· Develop Your Firm’s Disclosures with Focus on Long Term Value
When presenting information, it is paramount that you do it in a way that can help with further analysis and decision-making. Therefore, think of how SASB standards can assist your firm in disclosing both qualitative and quantitative info to communicate the enterprise's long-term value.
· Create Room for Continuous Improvement
Sustainability disclosure is the product of an ongoing and interactive process. Therefore, what you report should form a platform for later adjustments with the goal of progressive improvement. You can even create feedback loops for suggestions from investors on how to improve the process. This can help them to get involved and attached more to the company.
Now that you know the main SASB principles and its collaboration with other frameworks, the next question might be, “What is the importance of SASB certification?”
· SASB Standards Help Investors Make the Right Investment Decisions
Investors across the globe want to get consistent, comparable, and reliable data about financially material sustainability. By using the SASB framework, these investors have the assurance that the report they get is the correct presentation of the company under consideration. With SASB certification, investors can throw guesswork out of the way and only pick the firms with total commitment to sustainability.
· It is a Way of Cutting Down the Cost of Doing Business
When businesses, especially the new ones, look at the emerging needs for sustainability, it is easy to get distracted by the cost, but that is the smaller picture. While it is true that the implementation of the SASB framework comes at a cost, it also has impressive benefits in the long term. For example, the focus on enhancing the efficiency of a company's production might come with some costs since it might require buying and installing new machinery. However, the improved efficiency and reduced cost of production would result in more sales and profits.
· Better Connection to Company’s Stakeholders
As we highlighted earlier, more people are alive to the fact that the world is facing serious threats, and now is the time to salvage it. This is why they have been calling for greater responsibility, especially by corporates, and SASB certification helps you affirm your company’s commitment to it. By looking at your ESG report, they are able to appreciate the efforts you have made to try and make the world a better place. This way, they will want to be associated more with your company.
· A Good Method for Legal Compliance
Since 1992 when the first-ever UN Conference on Environment and Development was held, it has been a race to try and address the problem of environmental degradation. Now, more governments and organizations in positions of authority have stepped in and are helping to promote sustainability. For example, from New York Stock Exchange to London Stock Exchange, most stock exchanges require the listed companies to provide reports for sustainability. You can use the SASB framework and Diginex for compliance if your company is listed.
These are only a few of the benefits that you should anticipate from using the SASB framework. You can reap a lot more. For example, SASB certification gives you the satisfaction of being part of a team that is working hard to make the world a better place. So, do not be left behind in advancing this noble course for global sustainability. The world is looking to you.
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