SASB readies new ESG standards

The Sustainability Accounting Standards Board is readying more standards as it prepares for an upcoming merger, while the Securities and Exchange Commission increasingly focuses on environmental, social and governance reporting.

SASB held a board meeting Wednesday to discuss some of its upcoming standards on tailings management, human capital, supply chain management in the tobacco industry, and alternative meat and dairy products. The board members also heard updates on SASB’s progress on its merger later this year with the International Integrated Reporting Council to create a Value Reporting Foundation, and the International Financial Reporting Standards Foundation’s proposal to establish an international sustainability standards board that it would oversee alongside the International Accounting Standards Board.

The meeting came at a time when the Securities and Exchange Commission and international financial regulators are pushing for more consistent disclosures of ESG reporting. The growth in popularity in ESG funds among investors has attracted greater scrutiny from regulators, who are pushing standard-setters like SASB and the IIRC, along with the Global Reporting Initiative, the Climate Disclosure Standards Board, and the Carbon Disclosure Project to harmonize their standards to keep companies from taking a lowest common denominator approach to touting their environmental bona fides.

Last fall, the five groups agreed to work on smoothing out their differences, but with the IFRS Foundation now taking steps to set up its own standard-setting board, they will be part of a working group to help establish an internationally recognized standard-setter.

More immediate for SASB is the merger with the IIRC. “The merger is moving along well,” said SASB Standards Board chair Jeffrey Hales during a press conference Wednesday following the meeting. “It involves a lot of operations and logistical coordination, but it’s moving forward, so we’re expecting to officially launch the Value Reporting Foundation relatively soon.”

The IFRS Foundation also appears to be moving ahead with the proposed international sustainability standards board. “I don’t know that they’ve made a definitive decision on that, but they certainly have all indications of moving forward,” said Hales. “They’ve established a working group to make recommendations to the trustees on how they might go about establishing a sustainability standards board. They have even recently put forward a host of changes to their constitution that would allow them to do so, and that would include what the structure of the board would look like. That all seems to be moving forward. They’ve opened that up for public comment for the next 90 days or so.”

The SEC shows interest

Meanwhile the SEC has been coming out with more guidance and warnings on ESG reporting as environmental issues and climate change become more of a priority for the Biden administration. “The SEC certainly is actively engaged on a number of dimensions, whether they’re thinking about what role to play, whether additional rulemaking is needed, and whether the current guidance is being complied with,” said Hales. “Recently the SEC did put out a request for comments regarding the issue of climate, so SASB is going to be responding to that, and we’ll issue a public comment there.”

ESG has become an increasing topic of discussion at the SEC. “We hear a lot of questions about ESG,” said SEC acting chief accountant Paul Munter during a Baruch College conference Wednesday on financial reporting. “A lot of work is being done in the ESG space overseas. Last week the IFRS Foundation asked for comment on amending its charter. We sit as a member of their Monitoring Board, and are actively engaged in that process as well. I expect we will be doing more on that in the coming months.”

He noted that the SEC is looking at what groups like the Task Force on Climate-related Financial Disclosures and other ESG-related bodies are doing to help inform its process, but at this point it’s uncertain what the SEC might do from a rulemaking perspective. However, Munter advised companies to look at guidance issued by the Financial Accounting Standards Board and the IASB about how ESG might affect reporting and potential impairments in their filings.

“Investors are starting to coalesce around asking for SASB and TCFD disclosures,” said Marc Siegel, a former FASB board member and currently a member of the SASB board and a partner at Ernst & Young, during the Baruch College conference on Thursday. “We are seeing a huge spike in companies. The SASB standards were codified at the end of 2018, so they’ve only been out for two years. But in 2020 there were many hundreds of companies that reported under SASB standards.”

Lindsay McCord, chief accountant in the SEC’s Division of Corporation Finance, said at the same conference that when the SEC put out a request for comment recently on ESG issues, it received 25 letters.

Meanwhile, SASB has been working with the Global Reporting Initiative and the other standard-setters on harmonizing their standards and frameworks. “SASB and GRI have been part of this group of five and have also been working directly together to show how our frameworks can be mutually compatible and try to help companies meet their reporting needs to varying stakeholders,” said Hales. “SASB is very focused on investor needs and GRI is broadly focused on stakeholder needs, including investors as well as some others. Just last month, we put out a guide on sustainability reporting using both sets of standards and how companies can use that.”

SASB discussed four main projects at its meeting, including tailings management for pollution control at mines, which is still attracting comments and back and forth discussions. Human capital was another main topic of discussion.

“Human capital is a very large project and is already covered in over 40 of our industries,” said Hales. “But we know that there are other dimensions of human capital that aren’t covered, primarily with respect to labor conditions, health and safety, and some diversity, equity and inclusion issues. But we’ve had an ongoing project to look at that systematically across all of our industries and see where there are opportunities to improve the standards. … A top priority is going to be thinking about workplace culture and thinking about issues of diversity, equity and inclusion.”

Another topic of discussion was supply chain management in the tobacco industry, but SASB isn’t likely to pursue this project much further.

A new project that’s likely to attract interest is related to alternative meat and dairy products such as the increasingly popular plant-based meat substitutes like Beyond Meat and Impossible Burgers and alternative milks like soy milk and almond milk.

“Thinking about the role they play in the food and beverage industry, the staff proposed to the board to add a new standard-setting project to look at including a topic on alternative products as a disclosure topic,” said Hales. “What are the strategies around alternative products in the meat, poultry and dairy industry, as well as processed food retailers and distributors? For the moment, we’re not moving forward in other industries because these are the two where we saw the clearest evidence from companies and investors that this looked like an opportunity to really improve the quality of the disclosure around an important issue.”