This is an interview with SASB. NYSE presents the information for informational purposes, but does not endorse, represent nor warrant the accuracy of the narrative, which relies solely on material provided by SASB.
Neil Stewart started at the Sustainability Accounting Standards Board (SASB) in March as the Director of Corporate Outreach after nearly two decades at IR Magazine and four years at Citi. We asked him how SASB can fit into a company’s ESG strategy and where to start.
A growing number of companies are reaching out to SASB and telling us they feel a great urgency around ESG. Now more than ever, companies and investors have to pull in the same direction to tackle huge challenges like climate change, inequality and the human capital crisis caused by COVID-19. But while the kind of sustainability reporting that has evolved over the last 20 years or so serves an important role, it doesn’t fully satisfy the needs of mainstream investors who have begun to integrate ESG into their decisions. Instead, markets need comparable, decision-useful, industry-specific metrics and a common language to connect companies with the providers of financial capital. SASB standards are that language.
My new job is to reach out to companies, both directly and through institutions like the NYSE that guide them, to build awareness and help clear any remaining roadblocks to using SASB standards. We have a solid base of support on the investor side, with more than 100 buy-side SASB Alliance members representing more than $40 trillion in assets under management. Just this year we’ve seen high-profile requests for companies to adopt SASB standards from BlackRock, State Street Global Advisors and Norges Bank Investment Management – three of the world’s biggest investors. Now we need to close the circle and bring companies on board.
Along with helping companies connect with investors on ESG standards, my role is also making sure they can connect with SASB. Our standards came out of a years-long process with industry working groups involving hundreds of companies. As the standards continue to evolve, our due process still relies heavily on feedback from companies to ensure the standards meet their requirements – cost-effective to implement, allowing for robust controls and assurance, and effectively capturing the key risks and opportunities in each industry. I aim to balance companies’ needs as they work toward implementation with our research analysts’ need for their input.
Within SASB, we’ve been debating whether it’s a domino effect or a snowball effect. Either way, it looks to be unstoppable. Through April, we’ve seen 118 companies report using SASB standards, including 56 outside of North America. There were 118 in the whole of 2019, so one-third into this year we’ve already matched last year’s total. The number of unique reporters since 2018 – a figure we track to account for differences in ESG reporting cycles – stands at 219 across 30 countries. In March, for example, 73% of SASB reporters were new, including from countries we haven’t had before such as Germany, Italy, Portugal, Hong Kong, India and Indonesia. And there are many more companies we know are readying their SASB-based reporting.
Still, that’s a small fraction of the world’s companies, and we have a long way to go. It takes conviction to be the first in your industry or your country to adopt new reporting standards, especially if it means including certain metrics that haven’t traditionally been disclosed. Thankfully, there’s deep conviction out there.
In the financial world, SASB standards and recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) have become the dominant approaches because of our shared focus on financial materiality. But no single ESG standard could ever serve all stakeholders, and SASB standards certainly don’t try to. We’re laser-focused on the financial materiality of ESG factors in different industries, and how they impact a company’s operating performance, financial condition and risk profile, because that’s how investment decisions are made. And investors have to be able to make ESG-based decisions if we’re going to mobilize the trillions of dollars of investment needed to reach a sustainable, low-carbon future.
Of course, there are other kinds of decisions. People decide where they shop, where they want to work, and yes, sometimes even which stocks to buy based on other criteria including their personal values, so they need a broader array of non-financial information from traditional, story-based sustainability reporting. SASB’s financial materiality aspect fits alongside the other impacts explored in that kind of reporting. Our industry-specific standards are building blocks that can be used as part of any framework in any jurisdiction, in combination with other building blocks designed for other stakeholders or customized for local needs.
Above all, though, we have to get away from the dinosaur way of thinking that says what’s good for investors is bad for other stakeholders, or what’s good for other stakeholders is bad for investment returns. We now know that long-term corporate performance is clearly tied to human capital management, resource conservation, climate risk mitigation and other ESG factors. What’s good for all stakeholders – and the world – can be good for long-term shareholder value, and the better that companies can measure, manage and compete on ESG, the more value is created.
I know the pain that companies are experiencing. Before SASB I was at Citi, advising non-US issuers on investor relations and ESG, and I saw the ESG industrial complex mushroom over the last few years. For issuers, it can seem like chaos. I have to admit that when SASB was born in 2011, I had doubts that the world needed one more ESG standard – never mind 77 new industry-specific ones.
But then I saw how SASB caught on with investors because it enabled them to integrate ESG into their investment process like nothing had before, and I realized it was adding clarity, not complexity.
SASB standards are efficient and cost-effective for companies for two main reasons: many of our metrics are taken from existing industry standards, so companies probably have the data even if they aren’t reporting it publicly; and each standard focuses only on what’s financially material in that industry, with an average of just six topics and 13 metrics.
SASB standards reduce frustration in other ways. As companies take control of their own sustainability story, there’s less need for multiple surveys, and ESG ratings may provide more useful signals because ratings firms don’t have to fill in the gaps in reporting. Standardized, self-reported data can be a rock-solid foundation for the entire information chain.
SASB standards have been called an easy on-ramp to sustainability reporting because we’ve done most of the hard work of materiality assessment in 77 different industries, which gives companies a major head start. They may start with the SASB Materiality Map, then look up their industry in the SICS Look-up Tool and download their standard. But it’s important to remember that our standards were not designed merely as a reporting tool. Rather, they help companies incorporate the handful of ESG factors that really matter into their governance, strategy and risk management, likely leading to improved performance. So SASB reporting is not an end, but rather one facet of an ongoing process.
We recently launched a SASB Implementation Primer and broke that process down into six steps: Establish a foundation; choose the right tools for the job; decide where to disclose; understand SASB standards; assess your readiness; develop your disclosures; and enable continuous improvement. The Primer was designed to be a practical guidebook for companies both small and large, public and private, at any stage of their sustainability reporting journey.