At the end of 2018, the Sustainability Accounting Standards Board (SASB) released its corporate reporting standards for material environment, social, and governance (ESG) issues. These SASB standards are analogous to FASB’s but deal with ESG activities that help the companies create value over the long term and have been endorsed by large asset management firms such as BlackRock.
The authors analyze the quality of ESG reporting by the 91 companies that adopted SASB’s framework. While the number of such companies is still small, their results are encouraging, an indication of better things to come. Using three measures of effectiveness, Disclosure Topic Compliance Index (DTCI), Financial Relevance Compliance Index (FRCI), and Financial Intensity Compliance Index (FICI), the authors found that most companies are doing a good to very good job of reporting and companies tend to focus on measures with the highest financial relevance. Scores on these three measures were similar across industry sectors except for a few cases where the DTCI score is low.
They presented cases of three SASB standard companies: 1) Sunrun, a residential solar panel company that uses some hazardous materials, 2) Suncor, an integrated oil and gas company, and 3) Target, a retail company in a highly competitive industry needing to keep costs low while also managing an extensive supply chain responsibly.
These 91 companies have demonstrated that reporting according to SASB standards can be done well. This success should encourage other companies to follow and the authors offer a seven-step process to adopt SASB standards.