FSA Level One Exam

ESG Policies - not always great

"firms that boast the most elaborate ESG policies were the worst actors" and were "more likely to be ensnared in lawsuits and regulatory actions or controversies such as hiring discrimination, price fixing or tax fraud." - BlackRock This preliminary research suggests that, in some cases, ESG policies are written as a reaction to poor performance but do not necessarily lead to positive change

Characteristics of Disclosure Topics (SASB)

1. Financially impactful 2. Of interest to users 3. Prevalent 4. Actionable

Fiduciary

A 2015 follow-up report (Fiduciary Duty in the 21st Century) states unequivocally, "Failing to consider long-term investment value drivers, which include environmental, social and governance issues, in investment practice is a failure of _____ duty."

Performance Metrics

Can be compared to company peers, most helpful information

Corruption

Corporate Governance Codes Curb _____

Traditional Materiality

Focuses on the financial significance of a particular piece of information

Three Primary Cost Drivers (SASB)

Revenues or costs, assets and liabilities, and cost of capital

Tangible

There has been a decline in _____ assets comprising the market value of a company (today intangibles account for more than these)

Positive Relationship

A 2015 meta-analysis of more than 2,000 empirical studies found that the majority of studies demonstrate a ______ relationship between sustainability performance and financial performance. Of the studies in the sample, 90 percent demonstrated a non-negative relationship between sustainability and corporate finan- cial performance.9 In other words, a corporate focus on sustainability does not come at the expense of financial objectives, and in most cases it enhances companies' abilities to achieve those objectives.

Representationally faithful

A metric is _____ ______ if performance on the metric correlates with performance on the disclosure topic it is intended to address.

Complete

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

Accounting Metrics

A set of quantitative and/or discussion and analysis metrics intended to measure performance on a sustainability topic

Positive Screening

A strategy used to prioritize and/or actively choose firms to invest in based on certain criteria most common applications are a best-in-class and ESG momentum approach

Special Committee on Financial Reporting (also known as the Jenkins Committee)

AICPA formed the _________ in response to concerns about the relevance and usefulness of business reporting. The committee's key conclusions and recommendations called for improved business reporting that, in addition to financial statements, included valuable non-financial information

Principles for Responsible Investment (PRI)

About $110 trillion US dollars of assets under management (AUM) as of 2020 are managed by signatories to the ___ ___ ___, which promotes the incorporation of ESG factors into all investment decisions

Internal demand for sustainability information

According to a 2019 CEO study jointly conducted by the UN Global Compact and Accenture, 94 percent of CEOs believe that "sustainability issues are important to the future success of their business" and "recognize that sustainability can drive competitive advantage."

Technical Protocol

For each accounting metric, an accompany- ing ____ ____ provides guidance on definitions, scope, implementation, compilation, and presentation that can be applied by both report preparers and report users Help ensure disclosures from companies in the same industry are as comparable as possible

SASB Materiality

For the purpose of SASB's standard-setting process, 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

SASB

Founded in 2011, the Sustainability Accounting Standards Board (SASB) addresses this need by developing industry-specific standards that help companies disclose financially material, decision-useful, and cost-effective sustainability information to investors SASB Standards facilitate the collection, management, and reporting of sustainability information that is relevant, reliable, and comparable. In doing so, SASB empowers both corporate and investor decision-making, risk management, and strategy-setting.

Actual Impacts vs Potential Impacts

might materialize in the form of existing regulation and known changes in consumer demand vs 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

International Accounting Standards Board (IASB)

oversees the development of the International Financial Reporting Standards (IFRS Standards), the goal of which is to "develop, in the public interest, a single set of high quality, understandable, enforceable and globally accepted financial reporting standards based upon clearly articulated principles

Flexibility vs Usability

Biggest tradeoff in sustainability reporting Flexible implementation makes it easier for companies to report information, thus increasing the level of disclosure, but risks proliferating disclosures that are not comparable or decision-useful. On the other hand, specific and more stringent disclosure guidance supports comparability and decision-usefulness but risks creating pushback or frustration from the corporate community, especially if the guidance is not well crafted.

Disclosure Guidance Issuers

CDSB, GRI, IIRC, SASB, TCFD and others exist to create frameworks and standards that companies can leverage to increase transparency surrounding sustainability issues typically non-gov, nonprofit, issue voluntary guidance not only seek to promote transparency of information in the market but also tend to conduct their own operations with a high degree of transparency (free usage, publicly made decisions) help generate high-quality compa- ny-reported data that information users and others in the sustainability disclosure ecosystem can rely on

Securities and Exchange Commission (SEC)

Established in 1934 mission is to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation.

European Union Regulatory Guidance

European Commission (EC) passed the groundbreaking Directive 2014/95/EU, more commonly known as the Non-Financial Reporting Directive (NFRD) which compels public-interest companies (which includes any private companies designated as public-interest entities by national governments) with more than 500 employees to report information on a variety of sustainability topics 2015, France went beyond the NFRD and passed the Law on Energy Transition for Green Growth, which includes a requirement for climate-change-related reporting, commonly called Article 173. Article 173 requires publicly listed companies (as well as banks and asset managers) to implement low-carbon strategies in every component of their activities -- disclose the financial risks related to the effects of climate change and the measures adopted to reduce these risks in their annual reports to shareholders

Sustainable Business Strategy

A company's plan to proactively improve its performance by managing the financial and non-financial factors that impact its ability to create value over the long term

"Comply or explain" disclosure guidance

requires reporting companies to either comply with required rules or codes or explain why they have chosen not to offer companies a way to self-regulate and adhere to the requirements best suited to their specific business and operating environment without risking legal penalization nice if company does not yet have the data The flexibility of comply or explain helps increase disclosure (and ESG data availability) without placing premature disclosure burdens on companies comparability limited

The User of Materiality Information

"primary users of general purpose financial reports," "users of financial statements," and "a reasonable person," among others For traditional materiality, the user of the information is identified as an investor or a provider of capital. However, within investor audiences and beyond, different users have different priorities, and thus can have a different view about what information is material. The materiality of information depends on who uses it.

Double Materiality

(1) materiality in the context of enterprise value creation (2) materiality in the context of significant impacts on the economy, environment, and people

Supporting Characteristics of Sustainability Accounting Metrics

- Comparable - Neutral - Verifiable - Aligned - Understandable

How SASB Gained Market Input

- Consultation - Roundtables or other convenings - Public comment periods - Unsolicited Input

Motivations for collecting, managing, and reporting sustainability information

- Taking ownership of your sustainability story - Peer effects - Responding to investor interest - Improving performance management purposes that focus on disclosure: taking ownership of the sustainability story, peer effects, and responding to investor interest Sustainability disclosure and performance management represent two inextricably linked goals, though unique company priorities may shape internal processes and outcomes --> companies that use sustainability information in the service of performance management more clearly connect sustain- ability information to enterprise value creation outcomes

Three Categories of Metrics

1) Those for which it is already collecting data aligned with disclosure objectives: a. In this case, a company may consider how strong internal controls are for the data, who is accountable for data accuracy, whether data is subject to oversight by a disclosure or board committee, and whether it has been assured by a third party. 2) Those for which it is collecting similar data: a. In this case, a company should work with internal subject matter experts or business units, business partners, and/ or trusted advisors to evaluate whether the data could better align with disclosure objectives. 3) Those for which it is collecting no data: a. In this case, the company should seek to understand the level of effort required to capture and disclose on the sustainability topic. For each metric identified, the company should work with its cross-functional team to explore which internal experts would be best equipped to gather the data, and what the associated level of time, effort, and cost might be.

Three Pillars of Reliable Information

1. Appropriate board oversight ensures the accuracy of ESG metrics and performance management, and institutes appropriate internal controls and assurance and audit committee oversight 2. Established internal controls ensure the accuracy of sustainability data, from collection to preparation to disclosure. 3. Data assurance provides external stakeholders, company management, and the board with confidence in the reliability of disclosed information. Reliable information must be verifiable, faithfully represented, and presented without bias (neutral).

Sustainability Reporting's Unique Challenges

1. Different audience needs (lack of confidence and comparability) 2. Broad range of data types (variances among companies and regions) Without standardization and normalization of metrics, information users can have problems evaluating overall performance, comparing among companies, and using the information to make decisions Where financial accounting relies on the expertise of professionals within a singular, long-established discipline, sustain- ability information relies on the expertise of professionals across different facets of environmental science, human resources, finance, executive functions, and many other areas

How SASB can support a sustainable business strategy

1. ESG metrics directly tied to financial materiality can support companies in aligning sustainability with enterprise value creation. 2. Analyses that include financially material sustainability information are often more complete, which can prevent unwelcome surprises for the company and its investors. 3. Sustainability performance management can support companies in effectively differentiating themselves from their peers, helping to attract customers and investors.

US SEC emphasizes four points regarding the focus and content of MD&A

1. Focus on material information 2. Include key performance indicators 3. Disclose known trends and uncertainties that are reasonably likely 4. Analyze the information that is disclosed

Phases of the Risk Management Process

1. Identification: Because of SASB's focus on financial materiality, the Standards surface the subset of sustainability topics that are likely to represent business-critical risks and opportunities for companies in an industry. 2. Assessment: SASB performance metrics can help companies better assess their performance on key ESG issues, providing clarity on the likelihood, impact, and timing of a risk or opportunity should it materialize. 3. Response: Based on these assessments and peer benchmarking of performance data, a company can better understand whether to accept, avoid, reduce, or transfer a risk (or ignore, embrace, enhance, or share an opportunity). 4. Monitoring: SASB metrics are designed to support internal decision-making, including through integration into performance dashboards. 5. Reporting: SASB metrics are also designed to support external decision-making by investors through disclosure in core communications channels.

Pathway to a Sustainable Business Strategy

1. Identify metrics 2. Develop knowledge from data 3. Craft strategy based on findings

Questions asked to determine potential to improve the availability and communication of financially material sustainability information to investors in a decision-useful and cost-effective manner

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 alternatives? Does the technical staff, as well as the Standards Board, have sufficient capacity to address the issue? If yes to all, added to the public, standard-setting agenda (initiates the formal standard-setting process)

Four Stages of Value Creation

1. Minimizing costs 2. Optimizing Efficiencies 3. New products and/or technologies 4. New business models and differentiated value proposition

Characteristics of Sustainability Accounting Metrics (MAIN 2)

1. Representationally Faithful 2. Complete

How SASB can complement traditional research analysis framework

1. illuminating additional value drivers or risk factors; and 2. providing factors that impact existing value drivers, risk factors, and valuation models.

Three types of organizations significantly influence the supply and demand of quality sustainability data for capital markets

1. organizations that issue sustainability disclosure guidance; 2. organizations that aggregate sustainability data; and 3. organizations that create sustainability ratings and/or analytics.

"Short-termism"

A growing pressure put on corporate executives to meet near-term earnings projections at the expense of long-term value creation critics argue that persistent, extreme short-termism will result in diminished public confidence, depressed economic growth, and reduced investment returns. At its worst, short-termism may undermine the efficiency of capital markets by contributing to the mispricing and misallocation of assets because of a lack of reliable information about long-term prospects BUT 2017 study found that firms with a long- term mindset consistently outperform industry peers on nearly "every financial measure that matters

Thematic investing

A practice whereby investors optimize capital allocation to a specific ESG issue. It can also refer to an investment approach supporting a broader industry trend, such as renewable energy technology, social entrepreneurship, or water resource stewardship

Probability and magnitude test for materiality

According to this test, the determination of materiality should also consider the probability that an event will happen and the magnitude of the occurrence of the event (on top of total mix concept of materiality)

1. How do disclosures based on SASB Standards help meet the needs of different types of investors?

Across investment goals, strategies, asset classes and security types, investors leverage information yielded through the SASB Standards to support investment decisions. Whether it is an impact investor tracking certain KPIs, a fund manager applying positive or negative ESG screens, an equity analyst integrating ESG into fundamental analysis, a private equity fund engaging with companies on ESG performance goals, or a credit analyst bolstering risk analysis, the use of ESG data on financially material topics is used to enhance pre- and post-investment decision making.

Values-based screens

Aim to avoid investments based on the beliefs or ethical standards of the investors. For example, an investor may screen out alcohol and tobacco companies to avoid association with harmful substances

Environmental Cost Accounting (ECA)

Aims to analyze cause-and-effect relationships to identify the source of and measure environmental impacts While such tools can help companies understand operational efficiencies and environmental externalities, they were largely not developed to facilitate investor-focused communication

Fundamental Analysis

Aims to evaluate the intrinsic value of a security by examining relevant financial and economic factors. It aims to determine whether a security is correctly valued Can involve comparative analysis (comparing industry peers against one another) or company/security valuation (aims to determine the appropriate value of a company using various inputs and models)

Estimates and Assumptions

Although reporting sustainability information and financial information face different challenges, one way in which they are not different (but usually assumed to be different) is in the use of _____ and _____ With the substantive standardization of financial accounting, the use of estimates and _____ does not need to undermine the reliability or usefulness of sustainability information

Exclusionary Screening

An ESG implementation approach that excludes certain sectors or companies that deviate from an investor's accepted standards. Also called negative screening or norms-based screening.

Resolutions

An analysis based on 516,788 votes cast across 1,033 individual environmental and social (E&S) _____ by more than 2,000 funds offered within 52 US fund groups found that asset-manager proxy voting support for ESG-related shareholder _____ rose from 27 percent in 2015 to 46 percent in 2019

GRI Materiality

An organization is required to identify material topics by considering the two dimensions of the principle: (1) the significance of the organization's economic, environmental, and social impacts—that is, their significance for the economy, environment or society, as per the definition of 'impact'—and (2) their substantive influence on the assessments and decisions of stakeholders . A topic can be material if it ranks highly for only one dimension of the Materiality principle

3. What two considerations must sustainability disclosure guidance balance, and how do disclosure standards help achieve that balance?

As the spectrum of types of sustainability disclosure guidance illustrates, there are clear tradeoffs between flexible disclosure (which increases levels of sustainability disclosure and enables business-specific nuances in reporting) and disclosure that is useful to investors for its comparability, reliability, and decision-usefulness. Well-crafted sustainability disclosure standards may offer the most viable long-term solution to navigating this tradeoff to the benefit of companies, investors, and markets at large, as they can enable comparability without prohibiting companies from making useful adjustments or additions to their disclosure. They enable comparability where metrics are reported in the same way by different companies, but they can also enable disclosures tailored to a specific industry context and regulatory environment.

Examinations

Audit-level engagements designed to provide a high level of assurance on information other than historical financial statements

Stewardship codes

Based on the logic of fiduciary duty. They offer a framework of principles that investors can apply to their corporate stewardship activities. Generally require institutional investors to be transparent about their investment process, engage with investee companies, and vote in shareholder meetings Emphasizes the fiduciary responsibility of asset managers to be stewards of capital markets, not just stewards of their own investments

Scope of Materiality

Characteristic of Frameworks and Standards 2 concepts relevant to sustainability disclosure frameworks and standards: (1) materiality in the context of enterprise value creation (2) materiality in the context of significant impacts on the economy, environment, and people called double materiality SASB Standards and the CDSB Framework and <IR> are designed to surface the subset of those sustainability topics that are most relevant for enterprise value creation GRI Standards are designed to help companies determine which sustainability topics reflect their significant impacts on the economy, environment, and people, which helps users understand companies' positive and negative contributions to sustainable development

Scope of Information

Characteristic of Frameworks and Standards Environmental information, Social information, operational governance information, economic information, physical assets, intellectual assets

Industry Agnostic or Industry-Specific

Characteristic of Frameworks and Standards Industry agnostic disclosure guidance aims to capture performance on a set of criteria that can be ubiquitously applied to any company, regardless of the industry in which it operates. Frameworks such as those provided by the CDSB and IIRC are nearly always industry agnostic Industry-specific disclosure guidance establishes criteria that are relevant to companies in a specific industry. Companies with different business models and operating environments. often face different sustainability opportunities and risks. For example, the issue of climate change manifests itself quite differently across industries. SASB Standards are industry-specific, with separate standards for 77 unique industries several organizations provide guidance with characteristics of both

Time Horizon

Characteristic of Frameworks and Standards Notably, each of the six organizations evaluates sustainability-related issues on short-, medium-, and long-term time horizons, which is to say that none of the six frameworks and standards is solely focused on the short or medium term. Arguably, this differs from financial reporting guidance, which does not always focus on the long term

Primary Audience

Characteristic of Frameworks and Standards Of the organizations that issue sustainability disclosure frameworks and standards, some focus specifically on investors and providers of capital while others focus on a broad range of stakeholders including, but not limited to, investors The CDSB Framework, the <IR> Framework, SASB Standards, and the TCFD recommendations cater to investors and providers of capital GRI Standards and the CDP questionnaires cater to a broad range of stakeholders, including investors interested in understanding an organization's impacts

Governance Model

Characteristic of Frameworks and Standards The different objectives of each organization influence how standard-setting processes are designed, who has a voice, how loud that voice is in the standard-setting process, and how decisions are made during standard setting governance documents: public documents, they provide stakeholders with transparency into an organization's approach to the development of frameworks or standards, articulate due process activities, and clarify rules regarding public participation and open observation SASB's process for standard setting, for example, is governed by the Conceptual Framework and formal Rules of Procedure. Notably, SASB's Conceptual Framework mirrors those used by FASB and IASB public meetings, public comment

Type of Guidance

Characteristic of Frameworks and Standards frameworks: set of concepts and principles for how information is structured and prepared, and what broad topics are covered, promote consistency of information, both between reporting entities and over time, enable high-quality disclosure because they provide detailed guidance for preparing information related to governance, risk, and strategy, which helps companies report sustainability information with the same rigor as they do financial information VS Standards: set of specific, replicable, and detailed guidance for what should be disclosed (SASB, GRI), can support more comparable disclosure aligned with the TCFD recommendations than if companies reported on their sustainability strategy in a more free-form way, as the TCFD recommendations can at times offer broad flexibility in implementation, focus on identifying what should be disclosed, but also allow a degree of flexibility for companies to identify the sustainability issues most appropriate for their business and then use the relevant standardized metrics to measure those issues

Interpretive guidance

Clarifies or elaborates on the application of existing guidance to sustainability information Rather than creating new disclosure requirements, _____ _____ relies on existing reporting rules and procedures. Such guidance helps companies understand their responsibility to disclose sustainability information within the context of existing reporting practices. Ex. US SEC 2010 Guidance

Systemic Risk

Classifying industries based on sustainability characteristics can help investors reduce ____ ____ across a portfolio. (not to be confused with systematic or market risk)

1. In what ways do investors typically demonstrate demand for sustainability information to companies, and how has the growth of index funds shaped corporate-investor communication?

Companies express demand for quality ESG information in a variety of ways, including public calls for enhanced disclosure, direct engagement with companies, shareholder proposals and proxy voting and, in some cases, through buy/sell decisions. Yet, underpinning this wave of demand for quality ESG information is a shift in market paradigms. As levels of index investing outpace individual holdings, investors are increasingly incentivized to work with companies to improve performance because they no longer have the discretion to select individual securities. In this way, the growth of index investing leads to more active engagement on ESG.

3. Why do companies pursue sustainability disclosure?

Companies may issue sustainability disclosures for different reasons. By aligning on the "why," internal stakeholders can benefit from a clearer understanding of informational and audience needs. Companies are often motivated to take ownership of their "sustainability story" to counterbalance or reinforce the story told by third parties, and to clearly communicate the topics management identifies as most important to the firm. A company's decision to disclose may also be motivated by peer effects, may be a direct response to investor requests, and/or serve to maintain accountability while working to improve performance management.

1. What are two reasons why companies report using SASB Standards?

Companies report using the SASB Standards for many reasons, but primarily do so to meet unique ESG disclosure objectives alongside other reporting frameworks (such as GRI, IIRC, or existing annual reports), and to communicate the link between sustainability management and financial performance to investors.

Price Volatility

Companies with higher sustainability or ESG ratings have lower price and earnings per share (EPS) volatility than those with low sustainability performance scores Notably, the researchers found that sustainability information was the only reliable signal for predicting EPS volatility, provid- ing better insight than traditional measures such as return on equity (ROE).

Data Aggregators

Compile and present data, making it possible for investors to access data from a variety of companies in one place rather than sourcing data directly from individual companies tend to focus on two primary data types: structured and unstructured tend to be for-profit companies, less shaped by public comment

SASB Rules of Procedure

Complements the Conceptual Framework. It provides more detail about the mechanics of standard setting, as opposed to the Conceptual Framework, which provides the framework for how decisions are made. 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

Impact Investing

Considers sustainability information in investment products and strategies with the goal of creating positive impacts alongside financial returns CHARACTERISTICS: 1. Intention: an impact investor acts with the explicit goal of achieving social or environmental impact. If an investment inadvertently generates positive social or environmental returns, it is not considered to be impact investing. 2. Impact measurement: the impact generated by the investment is nearly always measured and reported to assess whether the investment achieved the desired impact. Performance is tracked through qualitative and quantitative impact data. 3. Impact management: data informs decision-making with the goal of mitigating negative impacts and maximizing positive outcomes. Financial returns are also considered (it is investing, not philanthropy after all). Unlike traditional investing, impact investing expects that returns may range from below market to market rate.

Thematic Bonds

Created to fund projects that generate positive impacts ex. green bonds, climate bonds, social bonds, and sustainability-linked bonds

Four Key Areas of Risk (Fixed Income Investing)

Credit risk, interest rate risk, yield curve risk, and liquidity risk ESG integration tends to focus on credit risk analysis and potential impacts to relevant credit ratios

Assurance

Defined as a review by external, independent professional(s) on the credibility of the data Audits most well known _____ services can also involve non-financial data and related non-financial processes and controls, as long as the provider can use a strong methodology to assess credibility

Statement of Intent to Work Together Towards Comprehensive Corporate Reporting

Describes a collective view on how the CDP, CDSB, GRI, IIRC, and SASB frameworks and/ or standards align with the others', provides a joint vision for the development of a comprehensive corporate reporting system, and promises a joint commitment to work together in achieving that goal

Governance Model SASB

Designed to protect SASB due process and ensure that standard-setting decisions are applied equally, free from bias, and protected from conflicts of interest

Enterprise Risk Management: Integrating with Strategy and Performance

Details five components of effective integration of ESG-related risks and ERM.: 1. Governance and culture of ESG-related risks: Governance and internal oversight determines how decisions are made and how these decisions are executed. 2. Strategy and objective-setting for ESG-related risks: A strong understanding of business context, strategy, and objectives anchors all ERM activities. Applying ERM to ESG-related risks includes examining the value creation process to understand these impacts and dependencies in the short, medium, and long term. 3. Performance for ESG-related risks: Includes identifying risks, assessing and prioritizing risks, and implementing risk responses. 4. Review and revision of ESG-related risks: Organizations can develop specific indicators to alert management of changes that need to be reflected in risk identification, assessment, and response. This information is reported to a range of internal and external stakeholders. 5. Information, communication, and reporting for ESG-related risks: Includes cross-functionally communicating to identify the most appropriate information to be communicated and reported internally and externally to support risk-informed decision-making.268

Primary Objectives of SASB Standards

Developed to address the market need for standardized, decision-useful disclosure of financially material sustainability information. To ensure this goal is met, the standard-setting process focuses on a clear set of guiding objectives. SASB Standards are designed to yield information that is 1. financially material 2. decision-useful 3. cost-effective.

Sustainable Industry Classification System (SICS)

Developed to meet the needs of users of financially material sustainability information, groups industries based on sustainability impacts Where other traditional classification systems take either a supply-side, production-oriented approach or a demand-side, market-oriented approach to classifying companies, SICS uses a methodology focused on impacts from risks and opportunities, which can have implications for either side. It builds on and complements traditional classification systems by grouping companies into industries based on their value creation model, their resource intensity and sustainability impacts, and their sustainability innovation potential Within a ______ industry, companies tend to have similar business models, face similar growth and innovation opportunities, operate in the same legal environment, rely on similar resources, and produce comparable products and services, as well as comparable impacts on society and the environment

Industry-specific

Disclosure resources that yield data relevant to companies in a specific industry, which is to say companies with similar business models and operating environments In addition to enhancing relevance and comparability, these can also be cost-effective for companies to disclose because they can incorporate metrics that are already in use within an industry

2. What are disclosure topics in a SASB Standard, and what purpose do they serve?

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.

Transparent

During standard-setting processes, 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.

3. What is "dynamic materiality" and how does it apply to sustainability information?

Dynamic materiality refers to the concept that the materiality of sustainability issues can (and often does) change over time as new risks and opportunities emerge and our understanding of issues evolves. The concept of dynamic materiality illustrates the interplay between environmental and social issues and financial materiality. Take, for example, the issue of regional water scarcity. As water resources are depleted in a certain region, the topic increasingly becomes a crucial business issue for companies operating in the region that rely on water as a critical input.

ESG Rating and Analytics Providers

Employ a unique methodology for scoring or ranking individual companies based on comparative ESG assessments Allow comparative ESG assessment over time and in relation to industry peers and competitors Tend to be for-profit companies, less shaped by public comment Less transparent on process of rating -- can be good bc reporting companies that provide information cannot game the system and influence how their data is interpreted down the value chain.

Software providers and disclosure platforms

Enable companies to collect and report information Software providers also help standard setters build taxonomies and information validation pathways

SASB's Five Sustainability Dimensions

Environment, Leadership and Governance, Business Model & Innovation, Human Capital, Social Capital

CDSB Materiality

Environmental information is material if: the environmental impacts or results it describes are, due to their size and nature, expected to have a significant positive or negative impact on the organization's financial condition and operational results and its ability to execute its strategy; omitting, misstating or obscuring it could reasonably be expected to influence the decisions that users of mainstream reports make on the basis of that mainstream report, which provides information about a specific reporting organization .

Four Fundamental Tenets of Standard Setting

Evidence-based, market-informed, industry-specific, and transparent

Japan's Ministry of Economy, Trade and Industry (METI) Practical Guidelines for Corporate Governance Systems (CGS)

Ex. of how increasingly, corporate governance codes identify sustainability considerations among the board's responsibilities; Influence of corporate governance codes call out the responsibilities of corporate management to comprehensively consider the impacts of ESG on "value, business model, risks, strategy, and other relevant matters.

King IV Report on Corporate Governance for South Africa, 2016

Ex. of how increasingly, corporate governance codes identify sustainability considerations among the board's responsibilities; Influence of corporate governance codes elaborate on the critical role of governance in providing "transparent and meaningful reporting to stakeholders," among other guidance items Specifically, the King IV Codes detail the role of the governing body in disclosing company strategy and performance where they have a responsibility to oversee reports, including sustainability reports, with the ultimate goal of enabling "stakeholders to make informed assessments of the organization's performance, and its short-, medium-, and long-term prospects."

Japan's Mandatory Greenhouse Gas (GHG) Accounting and Reporting System

Ex. of line-item disclosure guidance apan's GHG emissions legislation requires emissions disclosure from companies emitting certain greenhouse gases and/or companies that consume a certain amount of energy derived from carbon dioxide

EU Taxonomy for Sustainable Economic Activities

Ex. of line-item disclosure guidance one of four pieces of legislation included in the European Commission's action plan for financing sustainable growth, requires companies to disclose sustainability information in non-financial statements

2019 Philippines SEC Memorandum Circular No. 4

Example of comply or explain provision (for first 3 years) help publicly listed companies assess and manage non-financial performance across ESG topics relevant to each company, as well as "measure and monitor their contributions towards achieving universal targets of sustainability," such as the UN Sustainable Development Goals (SDGs) and other national programs

Directive 2014/95/EU— "The Non-financial Reporting Directive"

Example of principles-based guidance amended a previous account- ing directive to require large companies to disclose non-financial information regarding their management of social and environmental factors. The direc- tive affords a high degree of flexibility to reporting companies and requests informa- tion ranging from corporate sustainability policies, narrative information, and KPIs

Australian Securities and Investments Commission (ASIC) 2019 Regulatory Guide (RG) 228 and 247

Example of principles-based guidance two regulatory guides, a form of interpretive guidance, that require climate change reporting in a company's prospectus to retail clients or in its annual operating and financial review. The guidance details disclosure requirements for climate information in the context of the seminal Corporations Act of 2001, which dictates disclosure requirements to maintain listed status

Quantitative Metrics

Extremely useful for fundamental and comparative analysis

Internal Controls

Narrowly defined as activities that help companies achieve their objectives by mitigating risks of incorrect data and disclosures. When effectively implemented and maintained, they provide confidence to management that the organization has achieved its operations, reporting, and compliance objectives.

IIRC Materiality

In Integrated Reporting, a matter is material if it could substantively affect the organization's ability to create value in the short, medium and long term

2. What factors contribute to increasing investor interest in non-financial information?

In addition to increasing awareness of the "intangibles gap," the value of non-financial disclosure was endorsed by key organizations in the financial reporting community, who collectively support the notion that business reporting, both financial and non-financial, needs to improve to better serve the users of company reports. As such, non-financial reporting became an imperative component of business reports, used to disclose information relevant to evaluating a company's future financial condition and long-term value (including sustainability information) that is not reflected in financial reports. The growth of responsible investment practices also prompted an increased focus among investors on other sources of information that lend insight into company value, including a rejection of extreme short-termism and the recognition that long- term value generation falls within fiduciary duties of care.

AICPA Report published after FASB created

In addition to providing decision-useful information to investors, the report determined the objective of financial statements is "to report on those activities of the enterprise affecting society which can be determined and described and measured and which are important to the role of the enterprise in its social environment

3. How has the purpose of accounting changed since the 1930s, and why did financial reporting move toward standardization?

In early years, accounting practices centered around accurate recordkeeping via historical cost accounting. This founding purpose shaped the accounting profession, where accuracy and reliable record keeping are paramount. However, to serve their own unique goals, firms began accounting and reporting financial information using a range of methodologies, ultimately inhibiting the comparability of financial statements. This fragmentation of accounting practices necessitated a push by accounting associations to come to a consensus regarding the true purpose of accounting and to promote standardization. The profession ultimately determined that accounting exists to provide information for the purpose of making economic decisions, which can include both historical records and forward-looking information. High levels of adoption of standards such as the International Financial Reporting Standards (IFRS) and US GAAP allow investors around the world to efficiently source and use the information yielded through the standards. With higher levels of standardized disclosure comes more consistent, comparable, and reliable information across markets, allowing investors to equally assess and compare companies' performance and prospects.

Lower the cost of capital

In fact, in 2015 researchers from the University of Oxford evaluated 200 empirical ESG studies and found that "90 percent of the studies on the cost of capital show that sound sustainability standards ______ the cost of capital for companies."

Going from traditional cost accounting to more accurate measurements that show changes over time

In other words, the accounting profession recognized the importance of providing forward-looking information rather than just historical accuracy. The purpose of accounting definitively shifted, and financial statements were now intended "to provide information which will be of assistance in making economic decisions helped for standardization

2. How do traditional characteristics of materiality apply to materiality in the context of sustainability disclosure?

In the context of sustainability, materiality is often broadly defined as information that is relevant to the decisions of multiple stakeholders concerned with a company's impact on surrounding society. However companies increasingly apply the more-traditional concept of materiality to sustainability information to communicate to investor audiences through established disclosure channels. In these cases, material sustainability information is treated in the same way as material financial information, where the scope of information is limited to that which is necessary to understand a company's performance and prospects.

Risk Management

Provide company-wide perspective on the internal and external risks faced by a firm and the application of resources to minimize, monitor, and control potential impacts that negatively affect firm value and impact strategic planning

SASB Standards Board

Independent Board, with members appointed by the SASB Foundation Board of Directors. The SASB Foundation Board of Directors maintains a Standards Oversight Committee, which safeguards the independence and integrity of the standard-setting process through direct monitoring and evaluation of SASB's due process and through the resolution of due-process-related inquiries insulated from funding decisions made by the SASB Foundation Board of Directors— one way that the Standards are protected from conflicts of interest oversees the work of the SASB technical staff—colloquially referred to as the Research Team

Sustainability Accounting Standards Board (SASB)

Independent standard-setting organization, provides sustainability disclosure standards that enable businesses around the world to identify, manage, and communicate financially material sustainability information to investors Cover those environmental, social, and governance topics most likely to be financially material to companies in a given industry and reasonably likely to affect their financial condition or operating performance

SASB Materiality Definition

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

The User of Materiality Information's Objectives

Investors can have a variety of objectives for the information they gather from companies. Traditional definitions of "materiality" define the objective as making investment decisions, which can include decisions to buy, sell, or hold a security; or decisions to exercise investors' rights, such as voting on shareholder resolutions for equity investors.

4. How do existing data challenges inhibit investors' ability to use sustainability data?

Investors experience a wide range of chal- lenges related to sustainability data in the current landscape. For one, there is an abun- dance of binary, policy-based data and a lack of quantitative performance data disclosed from companies, meaning investors often have trouble obtaining information that lends direct insight into company perfor- mance related to sustainability factors. Even where companies do disclose quantitative performance information, it is not always comparable, as companies reporting on the same ESG topic often use different metrics and methodologies. In addition, widely-used third party ratings providers typically use different scoring methodologies and data inputs, which can skew analysis for those reliant upon third-party ratings and rankings. Sustainability data is also often limited to that which has been historically captured or is easiest to capture, which in some cases can make it difficult for investors to interpret where data captures partial performance of the whole entity. Historically, sustainability data has not been subject to internal controls, board oversight, or assurance processes, limiting its reliability. In addition, a significant amount of sustainability data disclosed by companies is not financially material, making it difficult for investors to differentiate between information that is or is not relevant to their investment decisions. As demand for quality sustainability information increases, investors increasingly request specific data through a range of channels, inundating companies with different requests and impairing efficient communication between companies and their investors.

1. Why are investors demanding quality sustainability information?

Investors source quality sustainability information to meet their investment goals. While investors are generally defined as people or organizations that allocate financial capital with the goal of achieving a profit, investors are not a monolith. Investment goals and accompanying strategies may include using the information to achieve above-market returns, assessing risk to protect against diminished returns and major losses, or evaluating the predictability of investment outcomes. Whether operating in public or private markets, the ability of investors to use financially material sustainability information to achieve enhanced outcomes is evidenced by an increasingly robust body of independent research. The channels through which investors demonstrate demand for sustainability information from companies vary, as discussed in Chapter 10

Compliance

Provide perspective on how to comply with existing and emerging environmental and ESG regulatory requirements as well as the resources required to comply with external ESG-related policy. Conduct ongoing monitoring of compliance with internal company policies and bylaws and integrity-related risks faced by a firm. Provide perspective on the necessary controls, policies, and procedures companies must adhere to in order to comply with applicable laws and regulations.

Policy-based information

LEAST helpful data disclosure According to one analysis conducted by Goldman Sachs, only 11.6 percent of disclosed E&S metrics constitute performance data & only one of the 25 most commonly disclosed pieces of ESG information—GHG emissions— is quantitative, and it's 25th (the lowest) on the list of commonly disclosed metrics (bad)

Stock Market Crash of 1929

London Stock Exchange Crash followed by NY Stock Exchange crash largely due to fraudulent investment practices, declines in consumer demand, misguided economic policy, and overextended credit, as well as other factors. led to Great Depression Bankers and companies failed to fully disclose information about the companies whose securities were being offered for sale, creating widespread securities sales using false or misleading information

Index Fund

Mutual fund or exchange-traded fund constructed to match the performance components of a market index, such as the S&P Global 1200 or EURO STOXX 50. They offer a low-cost way for investors to track popular stock and bond market indices while achieving broad diversification. An index might tilt toward companies with positive ESG characteristics, while also applying limited values-based or norms- based screens, such as eliminating tobacco companies or those scoring poorly based on non-compliance with the UN Global Compact principles.

"Reasonable" Investor

NOT a static trait - evolves over time 70s - one of these would not care about sustainability or social responsibility when it comes to investing not a nitwit, not a investment analyst

Human Resources

Provide perspective on human capital metrics and how such practices as employee loyalty and engagement, diversity and inclusion, recruitment, and compensation can impact shareholder value.

Regulators of sustainability information

Not super common mandate sustainability disclosure, they help build more consistency in requirements for reporting and likely increase the number of companies that report, depending on the details of the regulation

Task Force on Climate-Related Financial Disclosures (TCFD)

Offers a principles-based framework for climate-related financial disclosure used by companies to provide information to investors, lenders, insurers, and other stakeholders Offers a set of recommendations for companies to address climate risk in financial filings or other reports by disclosing information related to governance, strategy, risk management, and metrics and targets, with a strong focus on risks and opportunities related to the transition to a low-carbon economy

Climate Disclosure Standards Board (CDSB)

Offers companies a framework for reporting environmental information with the same rigor as is used to report financial information encourages standardization of environmental reporting processes and helps investors, analysts, companies, regulators, stock exchanges, and accounting firms consider the impacts of natural capital on corporate performance alongside financial capital sets forth a series of principles by which reporting companies should abide when disclosing environmental information in mainstream reports

Research suggests that companies committed to sustainability ______ in stock market performance

Outperform Harvard Business School predicted that an investment of $1 (US) made in 1993 in a value-weighted portfolio of companies performing well in sustainability would grow to $22.6 by the end of 2010, while a control portfolio of non-sustainability performers would grow to only $15.4 in the same time period

Independent Assurance Provider

Oversee data quality of sustainability disclosures, including the design and operation of the internal controls, to establish confidence in the information from management, investors, and other stakeholders that may use the data.

Chief Audit Executive and Internal Audit

Oversee risk management, controls, and governance processes/policies to the board of directors, audit committee, and others. Provide perspective on the information needs of independent assurance providers. Provide perspective into the level of data control and risk management oversight needed to inform management about the company's sustainability performance. Support quality testing and quality review of controls for sustainability data. Provide perspective on alignments between financial reporting and sustainability reporting to ensure consistency.

Industry-agnostic

Performance data generated through disclosure guidance that can be universally applied to any company, regardless of the industry in which it operates. ex. corporate governance information

Other Institutions driving demand for sustainability information

Policy-based initiatives Individual nations Non-policy efforts like sustainability stock exchanges Statements from various industry bodies

Socially Responsible Investing (SRI)

Practices often entailed (and in many cases still entail today) excluding those investments affiliated with certain geographic conflicts (such as apartheid in South Africa) or operating in "sin stock" industries such as weapons, gambling, alcohol, or tobacco. For this reason, _____ is often associated with exclusionary screening

Generally accepted accounting principles (GAAP)

Principles aimed at improving the consistency and comparability of financial reporting procedures.

ESG Performance is linked to improved ___

Profitability "reduced costs, improved worker productivity, mitigated risk potential, and created revenue-generating opportunities"

Technology

Provide perspective on the architecture (technology, platform, software, etc.) that will support reliable, accurate, and complete reporting that meets management's expectations for disclosure and/or offers insight to ensure data collection is timely, accurate, complete, and secure. Provide perspective on how data gathering and reporting processes can be effectively streamlined and scaled.

Investor Relations

Provide perspective on the connections between sustainability performance and enterprise value creation, effectively communicating the value of sustainability actions to shareholders, and in turn communicating and interpreting investors' opinions to management. Engage with investors to understand their sustainability priorities, and educate company leadership on those priorities.

Legal Counsel

Provide perspective on the legal risks related to the omission or inclusion of information in public documents, inform risk management, and inform decision-making to fulfill duties of care. Advise on how to adhere to existing and emerging environmental and ESG regulatory requirements, as well as the resources required to comply with external ESG-related policies.

Chief Sustainability Officer

Provide perspective on the ways ESG-related risks and opportunities impact a firm's operating model and business strategy. Provide perspective on necessary collaborative relationships, such as those with finance and internal audit teams. Provide oversight and perspectives on how existing processes for collecting, managing, and reporting data can be updated or improved to include sustainability data and where new data streams should be established. Provide perspective on the financial materiality of sustainability information, important KPIs, and how material risks and opportunities should be managed. Oversee best practices for ESG-related disclosures and stay informed on updates to existing frameworks and standards.

Business Unit Managers

Provide perspective on unit-specific knowledge and understanding to inform measurement, management, and reporting of sustainability data.

Discussion and Analysis (D&A) Metrics

Provides a contextual understanding of a firm's operations and strategic initiatives

Industry analysis

Provides a framework for consistently analyzing and valuing peer companies in an industry. Every industry has different value drivers and risk factors.

Principles-based guidance

Provides a list of tenets that companies use to guide their reporting process, favored by those who see benefits in allowing companies to choose what information would be most relevant for users ex. MD&A offers ___-___ ___ that requires companies to report "known trends, events, and uncertainties much more broad and flexible, often references third party resources for structure downside: little/no comparability upside: more info for users

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.

NGOs

Publish independent research and engage with investors, regulators, and companies alike to call attention to pressing environmental and social problems and mobilize action on those problems by regulators, consumers, investors, or others some "name and shame"

1. What does "climate first" disclosure guidance tell us about regulators' approach to sustainability disclosure globally?

Regulators and other institutions that issue new sustainability disclosure guidance often focus their guidance on climate information (rather than a more-comprehensive focus on environmental, social, and governance information, which can include climate information). Globally speaking, a focus on non-mandatory climate disclosure can be a means to overcome political obstacles to increase quality sustainability disclosure while also providing companies with a focused topic with which to ease into new reporting expectations. Though there has not been a visible, globally-coordinated effort to follow this approach, this approach can be observed across jurisdictions including the Canadian Securities Administration's Environmental Reporting Guidance, the European Commission's Non-Financial Reporting Directive, and the US Securities Exchange Commission's 2010 Guidance.

3. What challenges exist in sustainability disclosure that do not necessarily exist in financial disclosure?

Relative to financial disclosure and accounting, sustainability disclosure is a young discipline. Due to this limited history and differences in the nature of sustainability data, several challenges manifest exclusively in sustainability disclosure for reporters and report users. For one, many different audiences are interested in sustainability information - including investors but also members of civil society and community members - meaning companies must balance the needs of different audiences. Where financial accounting relies on the expertise of a singular, long-established discipline, sustainability accounting relies on the expertise of professionals across disciplines (such as environmental sciences, human resources, and others). Challenges also exist related to the ESG data itself. Companies report on a wide range of ESG topics, often using different metrics and methodologies to measure performance. High variability in the scale and scope of ESG data across corporate disclosures can skew analysis and limit its comparability when analyzing companies.

US SEC 2010 Guidance

Release elaborates on four climate change issues that listed companies should consider for disclosure: 1. Legislative and regulatory impacts 2. International accords 3. Indirect consequences of regulation or business trends 4. Physical impacts of climate change

4. How do metrics/KPIs contribute to a successful sustainable business strategy?

Relevant KPIs can be the difference between effectively managing sustainability performance or experiencing performance declines. ESG metrics tied to financial materiality can directly inform business strategy, where metrics help to identify key opportunities for value creation, identify and mitigate ESG risks, and even contribute to achieving a sustained competitive advantage.

Disclosure Topics

Represent the industry-specific impacts of general sustainability issue categories On average, each Standard has 6 disclosure topics, though some have as few as 2 topics per industry (e.g., Toys & Sporting Goods) or as many as 12 topics (e.g., Chemicals). Across all 77 industries, there are hundreds of disclosure topics. Each disclosure topic is extensively evaluated for its ability to meet specific criteria for inclusion in a Standard

United States Regulatory Guidance

S SEC has not established requirements for climate change disclosure, in 2010, it released guidance ("2010 Guidance") explaining how companies should apply exist- ing disclosure requirements to climate change information that might be appropriate to disclose

Decision Useful

SASB Standards must closely consider 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 SASB Standards are designed to help reporting companies regularly report accurate, objective information that allows investors to better understand how today's management decisions affect tomorrow's performance and provide them with the ability to make apples- to-apples comparisons among peer companies.

1. What are the three primary objectives of the SASB Standards, and how is the standard-setting process designed to meet those objectives?

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 sustain- ability 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.

Market-Informed

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

Industry-Specific

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 at play in the industry.

Cost-Effective

SASB explicitly takes ____-_________ into account throughout the standard-setting process, aiming to establish Standards for which the benefits of using of the Standards exceeds, or at least justifies, the costs of implementation Helps ensure that investor needs are not overly prioritized When selecting or developing related metrics for each disclosure topic, SASB considers whether data is already being collected by most companies or could be collected in a timely manner and at a reasonable cost SASB aligns to the extent possible with metrics contained in other reporting standards or regulations

3. How do the SASB Standards evolve over time?

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 balances the need for robust research with timely outcomes.

Evidence-Based

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 resources Done based on underlying industry structure, regulatory environment, and financial drivers.

Five Factor Test

SASB used, provided a reliable and consistent methodology to assess investor interest from topic to topic and industry to industry Addresses the following: 1. Financial impacts and risk 2. Legal, regulatory, and policy drivers 3. Industry norms and competitive drivers 4. Investor/stakeholder concerns and social trends 5. Opportunities for innovation Retired after the first standards issued (not good with year to year changes)

2. What two documents define SASB's governance procedures, and what purpose do they each serve?

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.

Canada Regulatory Guidance

Securities regulations are determined by regional securities commissions in Canadian provinces and territories. The Ontario Securities Commission is the most influential due to its regulation of the Toronto Stock Exchange. The Canadian Securities Administration (CSA) coordinates efforts among Canadian geographies 2010 Staff Notice 51-333 Environmental Reporting Guidance ("CSA 2010 Notice")94 delineating a number of disclosure requirements related to environmental matters

Environmental Profit and Loss Statements (EP&L)

Seeks to assign a monetary value to the environmental costs associated with certain business activities While such tools can help companies understand operational efficiencies and environmental externalities, they were largely not developed to facilitate investor-focused communication

Screens

Selecting a set of criteria, applying it to assets under consideration, and screening out assets based on their ability (or inability) to meet that criteria. For example, screens are applied to track an underlying index while also limiting exposure to carbon intensive industries, either by screening out high emitters or overweighting companies with low carbon exposure.

SASB Conceptual Framework

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. Serves 3 purposes: 1. It guides board members and staff who oversee and implement standard-setting activities 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 also reduces the influence of personal bias on standard-setting decisions and maintains consistency over time

Coalitions and alliance organizations

Shape corporate and investor behavior offer guidance and resources to help businesses around the world implement environmentally and socially responsible practices offer parallel resources to investors seeking to uphold responsible investment practices and integrate sustainability considerations into the investment process

Industry associations

Some have organized disclosure guidance specific to the industry they represent

3. What are some of the most common disclosure frameworks and standards? How do they differ? In what ways are they complementary?

Some of the most commonly used frameworks and standards include CDP, CDSB, GRI, IIRC, SASB, and the TCFD. They differ based on the scope of information covered in their disclosure guidance, the type of guidance they provide (frameworks, standards, or other), the industry agnosticism or specificity of information produced through their guidance, target audience, approach to materiality, and the governance models employed to develop their guidance Many often confuse the functionality of these organizations, however they each offer unique value propositions and can serve as complementary resources for corporate disclosure. This complementarity can best understood by focusing on two of the above characteristics: type of guidance and approach to materiality. Frameworks and standards serve distinct functions. Frameworks such as those issued by CDSB, IIRC, and TCFD offer a set of concepts and principles for how information is structured and prepared, and what broad topics are covered. Standards such as GRI and SASB offer a set of specific, replicable, and detailed guidance for what should be disclosed. By supplementing high-level disclosure principles with detailed and structured data, standards can make frameworks actionable. The second relates to each organization's approach to materiality - or how they define material information for the purposes of sustainability disclosure. Organizations such as CDP and GRI primarily define material information as that which is needed to understand a company's outward impact on the economy, environment, and people. Organizations such as CDSB, IIRC, SASB, and TCFD define material information as that which is needed to understand the impact of sustainability issues on enterprise value. This dual definition of materiality - focused on impact versus enterprise value - exists because of companies' need to communicate to different audiences. The former serves multiple stakeholders, which may include communities, civil society, staff, and providers of capital. The latter serves providers of capital, or those concerned with sustainability's impact on financial condition, operating performance, investment risk, and return rates.

Line-item Disclosure Guidance

Some sustainability disclosure guidance requires information to be disclosed using a specified methodology to produce specific line item Much better comparability

Internationally Applicable

Standards are developed based on a globally relevant definition of "materiality" and are designed to be effective and useful for companies and investors regardless of geographic location. SASB Standards are used in capital markets around the world SASB benefits from a process that analyzes industries, not geographies, as sustainability topics are generally consistent in industries across the globe In some cases, a bottoms-up analysis may find that a disclosure metric is not internationally applicable because of certain location-based norms or cultural difference. In other cases, top-down analysis may find that the sustainability topic itself requires different considerations for different markets, thus preventing the associated metric from ever applying internationally

Dynamic Materiality

The market's understanding of sustainability information is not static. In the same way that sustainability information never (or rarely) used to be considered financially material, the materiality of information can shift over time information that is material today may not be material tomorrow, and vice versa

ESG integration

Strategies that incorporate sustainability information into traditional security selection processes. Evaluate environmental, social, and governance factors alongside a mosaic of traditional financial factors to identify and evaluate risks and opportunities that may otherwise remain hidden. They allow users to assess the material factors that may affect a company or sector performance Purpose is not to apply social or environmental values to investment decisions, but to consider whether ESG factors contribute to, or detract from, the financial prospects of a given investment opportunity

Total Mix Concept

Suggests that material information is not defined by whether or not it would have changed an investor's decision. Rather, information is deemed to be material if it is significantly likely to be considered by a reasonable investor in investment decisions—a higher threshold than if it "might" be considered— by such an investor.

CDP

Supports companies, cities, states, and regions in measuring and managing environmental risks and opportunities, including those related to climate change, water security, forestry management, and other issues collects data through an annual survey and then scores companies and cities on a report- card-like scale ranging from A to F, where an A represents environmental leadership, a D- represents low environmental awareness, and an F indicates a failure to report sufficient information

2. What factors drive demand for quality sustainability information within companies?

Sustainability data, both qualitative and quantitative, can contribute to company success in the near, medium, and long term by improving the management of sustain- ability-related risks and opportunities. Where key performance indicators (KPIs) are measured and managed, companies may be better equipped to identify and mitigate risks, reduce costs, optimize efficiencies, and even increase market share and revenue growth through new products and services. Indeed, by demonstrating an ability to manage sustainability-related risks and opportunities to bolster company performance, companies can leverage sustainability disclosure to effectively communicate with investors and improve cost of capital. Simply put, demand for sustainability informa- tion within companies is often (though not always) driven by the goal to improve bottom-line performance

Financially Impactful

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

Of Interest to Users

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

Unstructured Data

Tends to be text-heavy. In the context of ESG information, often includes text files, news articles, call transcripts, reports, or other information that cannot easily be stored in a relational database and can therefore be much harder to analyze

Norms-based screening

Tends to exclude investments based on a company's behavior regarding internationally accepted norms and standards surrounding human rights, labor practices, and other issues. For example, an investor may exclude companies that do not adhere to the UN Global Compact principles or the Universal Declaration of Human Rights. Norms-based screening can also exclude companies identified for their involvement in particularly egregious events, such as the BP oil spill or Volkswagen emissions scandal.

Stakeholders (GRI)

Term that is widely understood to include not only investors but also a broader set of users, including civil society, communities, employees, customers, governments, and suppliers

3. How do companies disclose SASB-aligned data when a Standard does not perfectly align with their business?

The Sustainable Industry Classification System (SICS) was developed to identify the topics that are likely to be financially material to companies in a given industry. To develop the classification, SASB relied on characteristics of "pure play" companies, meaning companies that focus solely on a particular product or service. For example, companies in the Apparel, Accessories, and Footwear industry are presumed to only be involved in the design, manufacturing, wholesaling, and retailing of apparel, accessories, and footwear. As such, not all companies fit perfectly within one SICS industry. In these cases, companies may choose disclosure topics from secondary industries. In situations where a disclosure topic or metric does not apply to a particular business, companies may omit or modify the topic and metrics, and are asked to disclose their rationale for doing so.

Negative Screening

The avoidance of investments found to be objectionable by members of society

2. What is the relevance of "materiality" in the context of disclosure, and how has the concept historically been interpreted?

The concept of "materiality" traditionally focuses on information that impacts financial performance and investor decision-making. In the wake of regulatory efforts to enhance transparency from corporations, the concept was adopted to provide guidance to reporting companies. Though compa- nies were now held to higher standards of transparency, to require the disclosure of all information would place undue burden on reporting companies. "Materiality" dictates what companies are (and are not) obligated to disclose.

1. How do jurisdictions throughout the world traditionally define materiality?

The concept of materiality has traditionally been defined by securities regulators and accounting standards bodies strictly in the context of financial disclosure. It focuses on determining the financial significance of a single piece of information, providing a framework for reporting companies to determine what information it must disclose. While definitions around the world are substantively the same, jurisdictional nuances exist regarding the use of thresholds as a means to determine materiality, the legal conceptualization of "the reasonable investor," treatment of misrepresentations, misstatements, and omissions, and other factors.

Clear Information Structure

The core objectives of SASB Standards are achieved using an underlying information structure that all SASB Standards follow: - sectors - industries - sustainability dimensions - general issue categories - disclosure topics - metrics

Enterprise Risk Management (ERM)

The culture, capabilities and practices, integrated with strategy-setting and performance, that organizations rely on to manage risk in creating, preserving and realizing value (COSO) A process that: 1. is established and implemented by an entity's board of directors, management, and other personnel; 2. is applied in a strategy setting and across the enterprise; 3. is designed to identify potential events that could negatively affect the entity; 4. manages risks to contain them within the organization's risk appetite; and 5. provides reasonable assurance regarding the achievement of entity objectives.260

Prevalent

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

Actionable

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

2. Where do companies disclose SASB data?

The focus of the Standards on financial materiality means that companies disclose SASB data through a variety of channels, including in annual reports and integrated reports, regulatory filings, annual sustainability reports, as a stand-alone SASB report, or in more periodic web-based reports. There is no single location where SASB information must be reported, and companies may choose the disclosure channel best suited to their audiences.

1. What does the rise of intangible assets mean for corporate disclosure?

The increasing proportion of intangible assets as a percent of total S&P market value highlights that a very significant amount of information regarding corporate performance and value drivers is not captured in financial statements. Where investors previously relied almost exclusively on the valuation of tangible assets, it is now clear that tangible assets alone do not constitute a complete set of information that can be used to make informed investment decisions. A "gap" in information exists where intangible assets are not being clearly and consistently identified, measured, or managed.

1. To protect investors 2. To influence corporate behavior

The legislative history of the formation of the US SEC demonstrates two equally important purposes for the US SEC's existence

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. For example, in the Automobiles industry, SASB focuses on use-phase emissions rather than those generated during production, as life-cycle analyses have found that 80 to 90 percent of vehicle-related GHGs are emitted during use. In banking, SASB focuses on financed emissions rather than emissions from branches, which are comparatively negligible. In manufacturing, it focuses on the link in the value chain where the impact is most significant—for example, auto parts and its supply chain for auto manufacturing

3. Besides companies and their investors, what other institutions influence demand for sustainability information?

The performance benefits that investors and companies experience when integrating sustainability information into their decision-making processes are not the only factors driving demand for sustainability information. Other organizations, both public and private, influence the global ESG dialogue. International, national, and local policy-based initiatives stimulate sustainability disclosure by passing recommendations and guidance, as well as regulatory requirements, for the disclosure of sustainability information from publicly-listed companies. Non-policy efforts, particularly those initiated by securities exchanges and industry associations, increasingly encourage sustainability disclosure among listees and members.

Passive

The shift to ____ investment strategies can encourage investment stewardship with a focus on longer-term investment horizons and business strategies ex. Index funds

3. How is the use of sustainability information in corporate fixed-income different from the use of sustainability information in public equity? How is this similar to or different from the use of sustainability information in private equity?

The similarities and differences between the use of ESG information across public equity, private equity, and fixed income are nuanced and depend on the specific goals and expertise of the investor. However differences across these asset classes fall at the lines of evaluating upside potential, downside risk, and levels of company engagement. Public equity investors conduct analyses to price securities and evaluate future returns. As such, their ESG analysis will focus both on risks and opportunities related to the firm, with the particular goal of evaluating upside potential. In fixed income, investors are primarily concerned with evaluating a company's ability to repay and are concerned with factors that may influence default probability and loss severity. Here, investors' primary (though no singular) concern revolves around a company's ability to manage ESG-related risks and protect against downside risk. In private equity, investors traditionally take on a more involved role - engaging with the company throughout due diligence and the holding period, and often bringing a certain level of managerial expertise to support the company. Here, ESG is often used to identify KPIs and manage performance against those KPIs over time.

1. Why was disclosure the basis of regulatory reform in the wake of the 1930's stock market crash?

The stock market crash of 1929 sent shock- waves throughout global markets, leading to global economic declines and the onset of the Great Depression in the United States. The event provides perhaps the most striking example of how lack of transparency in capital markets can have disastrous consequences - harming socioeconomic well-being, bankrupting companies, and eroding investors' confidence in the information they rely on from companies to make investment decisions. Disclosure was the basis of regulatory reform in this defining period because disclosure is a means to promote transparency, and transparency is essential to fostering sound and efficient capital markets. As evidenced by the basis of the formation of the US SEC, regulated corporate disclosure is an effective mechanism to protect investors, positively influence corporate behavior, and enable informed investor decisions.

Boilerplate Language

broad, nonspecific wording that does not describe the realities of the registrant's particular operating context Rather, it could apply to multiple companies and/or a variety of industries

1. What role do frameworks and standards play in the sustainability disclosure value chain?

The sustainability disclosure value chain consists of organizations that produce information and organizations that use information. Disclosure frameworks and standards connect these producers and users. The information yielded through disclosure standards and frameworks underpins the entire value chain. They not only influence what companies disclose and how to do so, but are also leveraged by end-users to structure ESG data. Organizations that issue sustainability disclosure guidance such as CDP, CDSB, GRI, IIRC, SASB, and TCFD exist to create frameworks and standards that companies can leverage to increase transparency surrounding sustainability issues. They also tend to utilize market feedback loops to shape their frameworks and standards, uniquely considering the needs of reporting companies and the needs of end users.

1. How does SASB achieve each of the four fundamental tenets to SASB's approach to standard-setting?

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.

2. What three types of organizations strongly influence ESG data quality, and how are they different from one another?

The three organizations within the sustainability disclosure value chain that primarily influence ESG data quality include 1) organizations that issue sustainability disclosure guidance, 2) ESG data aggregators, and 3) third-parties that rate/rank company ESG performance The organizations that develop guidance for sustainability disclosure (frameworks and standards) promote transparency of information in the market and tend to conduct their own operations with a high degree of transparency. Typically, frameworks and standards are free to access and all decisions regarding changes to guidance are conducted in a public manner. Data aggregators compile and present publicly available data, making it possible for investors to access and analyze data from a variety of companies in one place. Third-party rating and ranking providers employ unique methodologies to assess the ESG performance of individual companies and often source data from both public and private sources. Both data aggregators and ratings providers typically provide their products and services for a fee, meaning their methodologies are often protected intellectual property and they operate to serve customer needs. In this sense, these three types of organizations differ by their place within the value chain (data aggregators and ratings providers operate downstream from those that provide disclosure guidance), the products and services they provide, and their relationship with stakeholders and customers.

NON-GAAP Measures

The use of ___-GAAP measures has grown dramatically in the past three decades highlight the fact that the financial statements alone—though incredibly important—do not provide a complete picture of corporate performance BUT still financial metrics derived from financial statements

4. What presentation formats have companies embraced when reporting sustainability information aligned with SASB Standards?

The way companies choose to present information disclosed using the SASB Standards varies. Companies increasingly publish assurance statements to signal the reliability of SASB-disclosed data, organize and format data in various ways and at multiple levels of granularity, provide data visualizations and time-series data, or present information in a downloadable spreadsheet to enable analysis. By looking at SASB disclosures at a company year-over-year, users can also get a sense of the extent to which a company has demonstrated continuous improvement and the extent to which disclosure quality may continue to improve in the future.

3. What are the different types of metrics in a SASB Standard, and what purpose do they each serve?

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.

Tilt fund (type of index fund)

Traditionally a type of fund that includes a core holding of stocks selected for their combined ability to mimic a benchmark index such as the S&P 500. Securities are then added to the fund to "tilt" it toward enhanced performance. When an ESG tilt is applied to index construction, assets are weighted according to ESG performance characteristics, either "away" from undesired characteristics, such as high carbon emissions, or "toward" desirable characteristics.

Financed Emissions

When a bank invests in, or provides lending to, firms that produce significant greenhouse gas emissions, the bank indirectly exposes itself to climate-related risks that could diminish returns and reduce value for shareholders

2. What are the four main characteristics of sustainability disclosure guidance?

When looking closely at sustainability disclosure guidance published by regulators, there are several key characteristics that dictate what companies report and how they report it. These characteristics directly influence the utility of ESG information to investors Interpretive guidance "interprets" or clarifies how sustainability disclosure applies to existing disclosure guidance. In other words, it requests or mandates sustainability disclosure without issuing a new rule or policy. Principles-based guidance provides a list of tenets that companies use to guide their reporting process. For example, principles-based guidance may require sustainability information to be "clear," or that the disclosure include KPIs without stipulating precise requirements for what clear information looks like or listing specific KPIs to include. Comply-or-explain guidance often applies to new mandatory disclosure requirements, where companies must comply with reporting guidance or explain why they have not. Line-item disclosure guidance refers to the disclosure of sustainability information using specified metrics and methodologies to produce specific line items. These types of guidance vary in how flexibly they can be implemented (with interpretive guidance being the most flexible and line-item disclosure being the least).

Key Features of SASB Disclosures

Why companies disclose varies according to the company's needs and the information needs of the audiences the company is trying to reach, which can include investors and/or other stakeholders. Where companies disclose varies considerably across reporting channels and formats. What information companies disclose differs across industries, operating environments, and internal data collection processes. How companies disclose differs accord- ing to the reporting platform, data presentation, and reliability of the information reported.

2. Why are SASB Standards best suited for ESG integration?

With ESG integration, investors adjust traditional analysis using sustainability information, such as financial models adjusted for revenue, costs, off-balance-sheet liabili- ties, or adjustments to capital cost. The purpose is not to apply social or environmental values to investment decisions, but to consider whether ESG factors contribute to, or detract from, the financial prospects of a given investment opportunity. SASB Standards allow users to assess the material factors that may affect company or sector performance. This is achieved by intentional analysis of evidence of financial impact throughout the standards development process. SASB Standards are best suited for ESG integration because they are directly linked to the channels of financial impact that are relevant to assessing investment prospects.

2. How do SASB Standards support cross-functional communication?

Within companies, the SASB Standards can serve as a bridge between professional roles for communicating sustainability information. The process of disclosing sustainability information is also inherently cross-functional, requiring data collection from various business units, internal audit engagement, legal compliance, management approval, investor relations, and other functions to integrate sustainability information into their workflows. The Standards can help smooth internal communications by helping to identify a common set of metrics used to measure financially material sustainability topics that can integrate into existing information channels.

Sustainability defined by 1987 Brundtland Report

World Commission on Environment and Development, formally titled Our Common sustainable development - "humanity has the ability to make development sustainable to ensure that it meets the needs of the present without compromising the ability of future generations to meet their own needs."

Withdrawal Rates

_____ rates, or the withdrawal of a resolution because of a negotiated dialogue, also continues to reach record levels Such a reversal demonstrates an increased willingness of companies and their investors to work together to find solutions on ESG and governance matters

How sustainability information is being disclosed

______ can impact its usefulness and perceived credibility. For investor-focused communication, the way data is presented directly influences how well analysts and investors can incorporate it into decision-making processes, and thus impacts a firm's access to and cost of capital. Companies can benefit from consider- ing investor expectations and preferences for data presentation. A company's reporting process over time can also lend insight into how the company's approach to sustainability (and internal data collection and reporting processes) have matured, and shapes audience expectations on future performance.

WHAT sustainability information companies are reporting

______ can take many forms. Where a company does not fit neatly into one SICS industry, companies often choose to use disclosure topics and metrics from multiple industries. Companies sometimes find that a topic provided in one industry standard is not financially material to their firm, does not include every sustainability factor that is financially material to the company, or cannot be reported according to the Standard. In these cases, companies may omit, modify, or add a metric and/or topic. Where topics and metrics have been omitted or modified, companies are expected to disclose a rationale for the change, per the SASB Standards Application Guidance. In various public forums, many investors have indicated that when they notice a company has omitted or changed SASB metrics without providing an explanation, they might assume the worst about the company's performance. Many companies also find that the usefulness of reported information is enhanced with additional context by adding qualitative or narrative information or by clarifying uncertainties.

WHERE do companies disclose using SASB standards?

______ may include a variety of channels, such as regulatory filings, annual reports, sustainability reports, integrated reports, stand-alone reports, and web-based platforms. In a growing number of jurisdictions, public reporting of certain sustainability information may be compulsory. SASB Standards have been used to comply with US SEC filings, including Forms 10-K and 8-K, as well as to comply with the EU Non-financial Reporting Directive. In the absence of reporting requirements, a company can choose the channel that best suits its needs. Where a company discloses such information often reflects where it expects investors and other stakeholders will look for that information. For annual and sustainability reports, some companies choose to disclose SASB Standards alongside other standards and frameworks, allowing companies to offer comparable, deci- sion-useful data while communicating awareness of social and environmental externalities.

WHY do companies choose to disclose material sustainability information

________ spans a range of reasons. When companies disclose using more than one standard or framework, SASB Standards can add supplementary data and even help operationalize other frameworks that do not offer guidance on specific metrics to disclose. The Standards' focus on financial materiality and each disclosure topic's connection to financial impacts can support companies in communicating how key sustainability issues impact a company's ability to generate value into the future.

Sustainability Strategy

a company's approach for improving its performance on one or more sustainability topics. They represent tactical, focused responses to a specific performance area can be one way a company responds to requests from stakeholders or improves its brand. However, by virtue of their focus on a specific element of the business, ___ ___ are often independent of the company's core business strategy and do not necessarily translate into sustained long-term success

Acute Impacts vs Progressive Impacts

correspond 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 vs present less-extreme effects in a given year, but are enduring and can erode a company's value over time

Global Reporting Initiative (GRI)

helps companies and other organizations report significant impacts on the economy, environment, and surrounding society, including impacts on human rights topic specific and are used to report material economic, environmental, or social topics to a range of stakeholders, including civil society, consumers, employees, investors, and policymakers

Investors use sustainability information to

improve their ability to achieve above- market returns reduce risk and volatility, and protect against diminished returns improve environmental and social investment outcomes, with financial returns as an equivalent or a secondary consideration.

Securities exchanges

increasingly encourage listed companies to report non-financial and sustainability information. Not to be confused with securities commissions (which serve as securities regulators and have the authority to legally mandate sustainability disclosure from public companies) often publicly listed companies themselves and set terms that companies must adhere to in order to maintain listed status many offer sustainability disclosure guidelines for voluntary use by listed companies

International Integrated Reporting Council (IIRC)

issues the International <IR> Framework (<IR> Framework). The <IR> Framework helps companies connect sustainability disclosure to reporting on financial and other capitals using a set of guiding principles for report preparation and connected content elements 6 capitals: financial, manufactured, intellectual, human, social and relationship, and natural

Structured Data

largely quantitative, such as stock values and water-use quantities, and can be clearly organized in a relational database, thus enabling easy analysis

Gap Analysis

may be a practical initial step in determining what data is already reported externally, what data is being collected but not reported externally, and what information still needs to be collected. For sustainability topics and metrics already reported, a company may also assess the quality of existing data collection procedures.

Historical Cost Accounting

measures an assets value as the actual cost paid for the asset at the time of purchase original nominal value is reported on the balance sheet even if the value of the asset changes over time

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. These may include operational data, such as the total number of employees or quantity of products produced. May also include industry-specific data, such as plant capacity utilization or hospital-bed days.

Management Commentary portion of financial disclosures aligned with IFRS Standards and the Management's Discussion and Analysis (MD&A) of regulatory filings in the US

provide space for company management to deliver important contextual information or additional details needed to interpret performance.

Sell-side analysts

those who work for investment brokerage firms, analyze companies, or make buy, sell, or hold recommendations on stocks or other secu- rities—can play a significant role in investor decision-making increasingly integrating ESG data with traditional financial information in their evaluation of investment opportunities and recommendations to clients

Companies

ultimately decide what information warrants disclosure (what info is material) lots of judgment

Board of Directors

• Optimize shareholder value and build investor confidence in an organization's long-term performance. • Oversee strategy and risk management, including how ESG-related risks and oppor- tunities impact an organization's operating model and overall strategic objectives. • Provide perspective on the financial materiality of sustainability information, important KPIs, and how material risks and opportunities should be managed. • Oversee integrated reporting, includ- ing assessing adequacy of financial and sustainability disclosures. • Provide perspective on how ESG disclosure practices compare with those of direct competitors and industry peers, as well as provide oversight of the internal audit function and the external audit process.

CEO and CFO

• Provide perspective on the financial materiality of sustainability information, important KPIs, and how material risks and opportunities should be managed. • Provide perspective on the ways ESG-related risks and opportunities impact a firm's operating model and business strategy. • Certify the accuracy and completeness of internal controls and disclosure controls. • Provide perspective on how, when, and what to communicate to board members, investors, and non-investor stakeholders on business-specific strategies for incorporating sustainability into core activities, decision-making, and performance evaluation.

Audiences for Sustainability Information

• Shareholders and other providers of capital: Seek information about performance on the sustainability topics most relevant to a company's short-, medium, and long-term financial performance. • Lenders, credit ratings agencies, and insurance underwriters: Seek information about how the company manages sustainability-related risks. • Communities, customers, employees, suppliers, civil society, governments, and investors: Seek information about the organization's impacts on society and the environment.

Sustainability info can be used to

• make decisions about exclusionary or negative screening (e.g., avoiding objectionable or low-performing investments such as weapons manufacturers or tobacco companies); and • make decisions about which investments to prioritize or actively select (e.g., beverage manufacturers that prioritize managing water risk). at simplest level

7 Characteristics of Frameworks and Standards

• scope of information • type of guidance • primary audience • scope of materiality • industry agnostic or industry-specific • time horizon • governance model.