The standards recently issued by the Sustainability Accounting Standards Board have gained traction with some institutional investors, proxy advisory firms, and even public companies.
A significant number of active and passive investment managers have pledged support for new industry-specific environmental, social, and governance (ESG) reporting standards for public companies that were recently published by the Sustainability Accounting Standards Board (SASB). Some investors have said they will use the materiality-based standards for investment decisions, as well as for proxy voting.
What’s more, the proxy advisory firm Glass Lewis shared its plan to incorporate SASB standards into its consideration of shareholder proposals in 2019. Glass Lewis said it will use SASB standards to assist the firm in determining the financial implications of a company adopting, or not adopting, any proposed shareholder resolutions that relate to ESG (e.g., a proposal seeking to tie executive compensation to sustainability metrics).
Some public companies have already begun using the SASB standards, the organization says. These companies include CBRE, Diageo, General Motors, Groupe PSA, Host Hotels, JetBlue, Kellogg’s, Merck, Nike, NRG Energy, and Schneider Electric.
While there is not (yet) a regulatory mandate for companies to adopt or disclose a specific sustainability framework, the endorsements of many investors—along with Glass Lewis—provide a strong incentive for public companies to adopt the SASB standards or some level of sustainability reporting.
Figure 1 shows a list of the organizations that comprise the SASB’s Investor Advisory Group, which endorses the standards.
| Figure 1: The SASB Investor Advisory Group |
Aberdeen Standard Investments
All Pensions Group
Bank of America Merrill Lynch
BCI
BlackRock
Breckinridge Capital Advisors
CalPERS
CalSTRS
Calvert
Capital Group
Domini Impact Investments
Goldman Sachs Asset Management
JANA Partners
Morgan Stanley Investment Management
New York City Retirement Systems
Nordea Investment Management |
Northern Trust Asset Management
Ontario Teachers’ Pension Plan
Oregon State Treasury
Perella Weinberg Partners
PGGM
PIMCO
QMA (a PGIM company)
State Street Global Advisors
Sustainable Insight Capital Management
TIAA Investments
UAW Retiree Medical Benefits Trust
UBS Asset Management
Vanguard
Walden Asset Management
Wells Fargo Asset Management
Wespath Investment Management |
Source: SASB
The full list of SASB standards is available here.The standards include four main elements:
- Disclosure topics: A minimum set of industry-specific disclosure topics reasonably likely to constitute material information and a brief description of how management or mismanagement of each topic may affect value creation.
- Accounting metrics: A set of quantitative and/or qualitative accounting metrics intended to measure performance on each topic.
- Technical protocols: Each accounting metric is accompanied by a technical protocol that provides guidance on definitions, scope, implementation, compilation, and presentation, all of which are intended to constitute suitable criteria for third-party assurance.
- Activity metrics: A set of 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.
Next Steps
At a minimum, a company should be conversant in the SASB standards for its industry and assess to what extent it believes the standards are relevant to the company. It is also important for firms to ensure that they are adequately conveying any existing programs or actions that already address the information sought by these standards through effective disclosure and corporate investor relations websites. However, businesses should still make their own determination of what is strategically important and consider incorporating those views into their proxy statement disclosure and/or outreach to investors.
Timing of the SASB release leaves little time for incorporation into 2019 proxy disclosure, but familiarity with the SASB standards may help companies navigate communications with investors and potentially even the SEC on ESG–related topics, such as shareholder proposals and risk oversight. Given the newness of these standards and the lack of broad consensus on sustainability reporting frameworks, even a modest level of proactive corporate actions on this topic can benefit a company and its shareholders.
If you have any questions about the sustainability reporting or other ESG–related topics, please write to info@mclagan.com. McLagan can assist in determining your compliance with these standards and other relevant measures, as well as determine appropriate next steps that align with your company’s business strategy, culture, and goals for ESG initiatives.