SASB FSA Level 1
IASB 2017 guidance
"matters that could affect an entity's long-term prospects; the entity's intangible resources and relationships; and ESG matters"
IFRS Management Commentary
-Provide management's view of the entity's performance, position, and progress -supplement and complement information presented in financial statements
examples of sources of evidence
-company source material -investor insights -third-party research -government and legal documents
US SEC on Management Disclosure and Analysis (MD&A)
-focus on material information -include key performance indicators (including non-financial and metrics to improve comparability to companies in other industries) -disclose known trends and uncertainties that are reasonably likely -analyze the information that is disclosed
materiality
-historically has described information likely to affect a company's operating condition and financial performance -now recognizes non-financial and sustainability information -refers to omissions, misstatements, and obscurement -obligation to ongoing disclosure as new facts emerge or events take place
components of sustainability disclosure value chain
-reporters -disclosure platforms and software providers -auditors -frameworks and standards -data providers -analytics platforms -end users -regulators
SASB governance
-standards are developed and maintained by the SASB Standards Board, and independent board with members appointed by the SASB foundation Board of Directors -Board of Directors maintains Standards Oversight Committee, which safeguards the independence and integrity of the standard-setting process -SASB technical staff (research team) monitors current/emerging sustainability trends, proposes research and standard-setting projects to the board for approval, and engages with stakeholders across capital markets and broader society
3 pillars of reliable information
1. appropriate board oversight 2. established internal controls 3. data assurance
SASB 5 sustainability dimensions
1. environment 2. leadership and governance 3. business model and innovation 4. human capital 5. social capital
examples of disclosure scope
1. environmental (natural resources, climate info, emissions) 2. social information (social and human capital issues, like workforce safety and access/affordability) 3. operational governance (how a business is run - corruption, bribery, etc) 4. economic information (financial inputs, economic impacts of the company related to ESG-based practices) 5. physical assets (physical goods and infrastructure owned, leased, and controlled by an organization) 6. intellectual assets (intangible assets that lend insight into a company's future earning potential and competitive advantage)
SASB 4 Fundamental Tenets
1. evidence-based 2. market-informed 3. industry-specific 4. transparent
SASB criteria for disclosure topics
1. financially impactful 2. of interest to users 3. prevalent 4. actionable
three core components of SASB disclosure guidance
1. financially material 2. decision-useful 3. cost-effective
SASB Conceptual Framework
1. guides board members and staff who oversee and implement standard-setting activities 2. helps stakeholders better understand SASB's approach to standard setting 3. helps to improve board member and staff engagement and consultation with stakeholders by providing a common language for communication -also reduces influence of personal bias in standard-setting
SASB characteristics of metrics
1. representationally faithful 2. complete 3. comparable 4. neutral 5. verifiable 6. Aligned 7. understandable
Characteristics of framework and guidance
1. scope of information 2. type of guidance 3. primary audience 4. scope of materiality 5. industry agnostic or industry specific 6. time horizon 7. governance model
Number of sectors and industries in SASB guidance
11 sectors, 77 industries
A statement of basic accounting theory
1960s report that shifted focus of financial reporting from strict historical asset valuation and toward decision usefulness of reported information to the users of the disclosed information -"provide information which will be of assistance in making economic decisions"
Canada sustainability reporting requirements
2010: CSA (Canadian Securities Administration) Staff Notice delineated a number of disclosure requirements related to ESG 2019: expansion on 2010 report to identify and disclose material climate change risks to investors
GRI definition of materiality
2011 "sustainability reporting guidelines": topics that: a) reflect organization's significant economic, environmental, and social impacts b) would substantively affect assessments and decisions of stakeholders
EU sustainability reporting requirements
2014: Non-Financial Reporting Directive (NFRD) compels public-interest companies to report sustainability information -principles-based (material; fair/balanced/understandable; comprehensive but concise; strategic and forward-looking; stakeholder-oriented; consistent and coherent) 2015: France Law on Energy Transition for Green Growth requires publicly listed companies to implement low-carbon strategies in every component of their activities EU Taxonomy: extremely specific criteria for evaluating economic activities, including through social lens EU Taxonomy, Jan 2022: companies expected to disclose turnover derived from activities that are environmentally sustainable and, when applicable, capital expenditures and operating expenditures associated with qualifying activities
Statement of Intent to Work Together Towards Comprehensive Corporate Reporting
2020: CDP, CDSB, GRI, IIRC, and SASB joint statement
European Commission's Action Plan for Financial Sustainable Growth
3 core strategies: -reorienting capital flows towards a more sustainable economy -mainstreaming sustainability into risk management -fostering transparency and long-termism
80/20 rule
80% of emissions come from 20% of sources
comply or explain
A set of guidelines that require companies to abide by a set of operating standards or explain why they choose not to. -promote transparency from companies who are not developed enough or unable to comply with existing regulations
CDSB
Carbon Disclosure Standards Board: -offers companies a framework to disclose environmental information with the same rigor used to report financial information -encourages standardization of environmental reporting -helps investors, analysts, companies, regulators, stock exchanges, and accounting firms consider the impacts of natural capital -series of *principles* to abide by in reporting
EBITDA
Earnings before interest, taxes, depreciation, and amortization
FASB (Financial Accounting Standards Board)
Founded to replace APB; identified goal of disclosure and accounting; affirmed decision-usefulness and emphasis on discounted future cash flows as way of valuing assets (as opposed to historical cost accounting) -also stated that economic and social goals of a business are equally important
financed emissions
GHGs emitted by entities that receive financial services, loans or investments from a bank/investor (important to disclose and risky investments)
GAAP
Generally Accepted Accounting Principles
IIRC
International Integrated Reporting Council -<IR> Framework - helps companies connect sustainability disclosure to reporting on financial and other capitals: 1. financial 2. manufactured 3. intellectual 4. human 5. social and relationship 6. natural
KPI
Key Performance Indicator
US SEC/Securities and Exchange Commission
Protects investors, maintains fair, orderly, and efficient markets, and facilitates capital formation
Brundtland Report
Published in 1987 in the influential report "Our Common Future" and created by World Commision on Environment and Development of the UN. Discusses sustainable development and the triple bottom line for the first time.
SASB
Sustainability Accounting Standards Board -covers environmental, social, and governance topics most likely to be material financially to companies in a given industry
TCFD
Task Force on Climate-related Financial Disclosures: -Principles-based framework for climate-related financial disclosure -provide information to investors, lenders, insurers, and other stakeholders -strong focus on risks and opportunities associated with transition to low-carbon economy
United States sustainability reporting requirements
US SEC, 2010: guidance explaining how companies should apply existing disclosure requirements to climate change information that might be appropriate to disclose
assurance readiness
a measure of internal confidence in the quality of a company's processes and information used for internal decision-making
assurance
a review by an external, independent professional on the credibility of data
internal controls
activities that help companies achieve their objectives by mitigating risks of incorrect data and disclosures
50%
approximate market share of passive funds in US equities
reasonable assurance
assurance with level of rigor comparable to an audit. Examines reported information, source data, and an organization's internal controls for protecting the integrity of source data.
examinations
audit-level engagements designed to provide a high level of assurance on information other than historical financial statements
stewardship codes
based on logic of fiduciary duty, they offer a framework of principles that investors can apply to their corporate stewardship activities
CDP
carbon disclosure project: -supports companies, cities, states, and regions -measure and manage environmental risks and opportunities -compiles and scores companies: A: environmental leadership D: low environmental awareness F: failure to report sufficient information
software providers and disclosure platforms
collect and report information
SASB Rules of Procedure
complements the Conceptual Framework by providing more detail about mechanics of standard setting -Conceptual Framework is more of a general outline for how decisions are made
actual impacts
could materialize in the form of existing regulation and known changes in consumer demand
rules-based approach
details specific reporting format and standards with a relatively high degree of detail
impairment calculations
difference between book value and fair market value, reported as an impairment loss
decision-useful
disclosures that consider the needs of primary users of info and yield qualitative and quantitative data that helps users assess a business' operating performance and financial condition
securities exchanges
encourage listed companies to report non-financial and sustainability information -often publicly listed companies themselves that set terms companies must adhere to to maintain listed status
ECA
environmental cost accounting - aims to analyze cause-and-effect relationships to identify the source of and measure environmental impacts
EP&L
environmental profit and loss statements - seeks to assign a monetary value to the environmental costs associated with certain business activities
acute impacts
events that may be rare or unlikely but can have significant impacts
quantitative metrics
extremely useful for fundamental and comparative analysis, as well as a contextual understanding of a firm's operations or strategic initiatives
boilerplate
first sustainability disclosure type: broad, nonspecific wording that does not describe the realities of the registrant's particular operating context
audit committee
front line in determining if and how sustainability information will be assured
GRI
global reporting initiative: -independent standard-setting organization -helps companies/organizations report significant impacts on economy, environment, and surrounding society
technical protocol
guidance accompanying each accounting metric that advises on definitions, scope, implementation, compilation, and presentation to help ensure that disclosures from companies in the same industry are as comparable as possible
Stock Market Crash of 1929
historical example about how a lack of transparency and public reporting can have disastrous consequences
83%
how much tangible assets composed of market value of S&P 500 in 1975
10%
how much tangible assets composed of market value of S&P 500 in 2020
need for standards
improve market efficiency and price discovery, reduce information asymmetry, and promote trade across markets
disclosure topics
industry-specific impacts of general sustainability issue categories
SASB definition of materiality
information is financially material is omitting, misstating, or obscuring it could be reasonably expected to influence investment decisions by users based on expected financial performance and enterprise value
materiality (as defined by the US Supreme Court)
information is material if its exclusion would have altered the "total mix" of information considered by a reasonable investor
dynamic materiality
information that is material today may not be material tomorrow
structured data
largely quantitative and can be organized in a relational database -this type of data is often reported once a year
potential impacts
latent impacts, such as results of pending regulation or sustainability issues, threats of competition from products or services, or increased interest in sustainability performance
progressive impacts
less-extreme effects in a given year, but are enduring and can erode a company's value over time
principles-based guidance
list of tenets that companies use to guide their reporting process (such as that offered by MD&A)
customer welfare
management of public health risks and social externalities experiences as a byproduct of a core product or service
cost-effective
mandatory disclosures and reporting requirements can place a significant financial and resource burden on companies; helps ensure that investor needs are not overly prioritized -> thus, SASB aligns to the extent possible with metrics contained in other reporting standards or those already used in the industry
historical cost accounting
measured the value of an asset as the actual cost paid at the time of purchase -original nominal value of asset reported on balance sheet, even if the asset's value has changed over time
suitable criteria
metrics and underlying protocols suitable for a company's disclosure context and needs
activity metrics
metrics that quantify the scale of a company's business and are intended for use in conjunction with accounting metrics to normalize data and facilitate comparison e.g. operational data, such as number or employees or quantity of product produced **strictly quantitative
limited assurance (review)
more limited in scope than reasonable assurance examination
withdrawal rates
number of withdrawals of resolutions (by investors or stakeholders) because of a negotiated dialogue -have reached record levels, suggesting increased collaboration between companies and investors
SEC 2010 guidance:
obligation to disclose how climate change affects the following: -legislative and regulatory impacts -international accords -indirect consequences of regulation or business trends -physical impacts of climate change
Committee of Sponsoring Organizations of the Treadway Commission (COSO)
private organization to provide frameworks and guidance on enterprise risk management, internal control, and fraud deterrence
gap analysis
process for determining what data is already reported externally, what data is being collected but not reported externally, and what information needs to be collected
MD&A (management discussion and analysis)
provides a narrative from management's perspective that identifies and discusses key performance indicators that management uses to manage the business and would be material to investors
XBRL (eXtensible Business Reporting Language)
provides a standardized system to improve the way data is communicated in the capital markets - to reduce the burden on reporting companies, regulators will most likely include ESG reporting as part of the existing taxonomy
types of accounting metrics
quantitative and discussion and analysis (MD&A)
securities commissions
regulators with the authority to legally mandate sustainability disclosure
Accounting Principles Board (APB)
replaced CAP to resolve tensions, reduce variation in accounting practices, and establish one standardized practice
3 primary financial drivers
revenue and cost; assets and liabilities; cost of capital
Company-tailored narrative
second sustainability disclosure type: Specific language in a disclosure that can be understood only in the context of the reporting company
governance documents
set forth the formal, systemized procedures and principles applied to the development of sustainability guidance -for SASB, they are the Conceptual Framework and Formal Rules of Procedure -developed using robust input from wide range of market participants and public meetings to foster transparency in decision-making process for framework or standards
accounting metrics
set of quantitative and/or MD&A metrics intended to measure performance on a sustainability topic
SRI
socially responsible investing
Standards' Advisory Group (SAG)
standing committee of volunteer industry experts from corporations, financial institutions, and third parties -comprised of about 174 members -advisory groups of industry professionals, investors, financial analysts, and other subject matter experts
unstructured data
text-heavy; text files, news articles, call transcripts, and reports -historically, most sustainability data has been of this type -this type of data can change daily
performance metrics
third sustainability disclosure type: standardized metrics to allow comparability with company peers
problem with short-termism
though increases market liquidity, persistent short-termism may undermine the efficiency of capital markets and result in diminished public confidence and depressed returns
"reasonable"
used by CDSB, SASB, and TCFD, opening information yielded through these frameworks to be subject to the rule of law (not used by GRI and IIRC)
Sustainable Industry Classification System (SICS)
used to prevent the granular industry classification system that creates overlap/repetition between industry sustainability accounting standards (as with Global Industry Classification Standards (GICS), Bloomberg Industry Classification System (BICS), and Industry Classification Benchmark (ICB) -focused on impacts from risks and opportunities to differentiate industries, as opposed to a supply- or demand-side oriented approach
double materiality
useful for enterprise value creation and in the context of significant impacts on economy, environment, and people
sell side analysts
work for investment brokerage firms, analyze companies, or make buy/sell/hold recommendations on stocks and securities
