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[Event Recap] [BASIC Event] Fundamentals of Sustainability Accounting Credential from SASB

Dan Saccardi

BASIC’s April 12 event focused on the Sustainable Accounting Standards Board’s (SASB) Fundamentals of Sustainability Accounting (FSA) credential. Eric Kane, SASB’s Sector Analyst for Health Care, provided an overview of SASB and the credential certification, and Will Krause, VP and Portfolio Manager at Moody, Lynn & Lieberson, shared a practitioner’s perspective on FSA.

SASB OVERVIEW

Kane highlighted key market trends driving demand for the provision and use of environmental, social, and governance (ESG) data, including the significant growth in assets managed using sustainable investment strategies:
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Despite this growing demand,  investors lack the tools needed to sufficiently integrate sustainability into investment decisions. For example, according to a PwC study, 80% of investors were dissatisfied with the comparability of ESG data between companies:
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SASB aims to help investors and companies speak the same language by providing material, decision-useful, industry-specific information that is compatible with over 200 existing reporting frameworks, regulations, and certifications. SASB has released provisional standards for all 79 industries and is in the process of getting final stakeholder feedback before finalizing these standards by January 2018.

Companies are becoming increasing aware of ESG disclosure and are beginning to provide some information to investors. However, SASB found in its State of Disclosure 2016 report that too much of the ESG data provided in 10-Ks are boilerplate rather than specific to companies’ business:
  • 69% of companies are addressing at least 75% of SASB topics for their industry
  • 38% are providing disclosure on all SASB topics for their industry
  • BUT, more than 50% of disclosures use boilerplate language rather than provide material details specific to the company

FSA CREDENTIAL

SASB’s FSA credential is intended to facilitate a common understanding between investors, analysts, reporting professionals, sustainability professionals, and securities lawyers through its Level I and Level II certifications.

Level I focuses on how sustainability information can be financially material, and the related implications for companies and investors, including:
  • What is materiality in the context of disclosure requirements and investors’ needs?
  • How can sustainability information be financially material?
  • What is SASB’s methodology for standardizing sustainability information to improve its usefulness and comparability?

Level II emphasizes how to gain an enhanced understanding of a company’s performance and value from material sustainability information, including:
  • Identifying how a company’s operations or operating context influence the materiality of sustainability
  • Comparing peer companies’ sustainability performance with normalization and additional contextual information
  • Evaluating the connection between performance and SASB topics and financial value

PRACTITIONER’S PERSPECTIVE

In a Q&A discussion, first with Eric and then the audience, Will Krause shared his point of view on SASB reporting and the business value of the Level I and II credential.

What was your motivation to become involved in developing the FSA curriculum?
  • SASB’s focus on materiality and financial relevance was unique and compelling.
  • Given his regular use of ESG data as a practitioner, Krause was interested in shaping the Level II process in order to make it applicable for investors, analysts, and reporting and sustainability professionals.

What is the value of Level I and II?
  • Level I provides a history of standards (including linking SASB to FASB) and helps practitioners develop a better understanding of ESG-related materiality.
  • Level II focuses on the application of SASB’s standards in real-world situations to help make sense of how to use the information.

How have you applied the credential knowledge?
  • From an equity analysis point of view:
    • Quant funds are beginning to incorporate ESG data as the quality of disclosures improves.
    • Qualitatively, the FSA helps broaden the investing decision perspective. The SASB background helps inform material questions to ask of company management.
  • Prior to the FSA, Will focused on disclosures (how transparent were companies being?). The FSA deepened his understanding of differentiating between boilerplate vs. tailored, more material data

How does FSA credential help advance sustainability movement?

The FSA helps:
  • Build a common language between asset owners, managers, and companies; and expands the language of fiduciary responsibilities, which those three groups know well, to include sustainability
  • Educate senior leadership and all employees. For example, if analysts ask CEOs ESG questions, they either know the material ESG information, which is a good signal, or have to go back to their team, which may indicate it’s a priority going forward

Who is a good fit for the Level I and Level II credential?
  • Corporate sustainability professionals
  • Asset owners and managers

What data providers actively gathering this data?

There is general interest across providers (e.g., Bloomberg captures SASB metrics in the Terminal), but companies still need to provide more data  

Will SASB expand to international equities/companies?

Eric noted that:
  • SASB is initially focusing on U.S.-listed companies (including foreign-based companies that file in the U.S.)
  • Once current standards are finalized (in January 2018), SASB will begin to push into other markets