Ellis: So, identifying what ESG information is likely to be material to a company’s performance is SASB’s work in standard setting.
Rogers: That is the essence of our work. If we don’t get that right, nothing else matters. We go industry by industry to look at how companies use resources, and how they impact society and the environment depending on the types of goods and services they produce.
We’ve just put out a staff bulletin that details how SASB determines whether an issue is likely to materially impact the performance of a specific company or an entire industry. Disclosure topics for a health-care company are going to be quite different from those that are material to an oil and gas company. We had nearly 3,000 experts participate in industry working groups to identify those issues at the industry levels.
Our research has identified that 69 percent of companies are already addressing at least three-quarters of SASB disclosure topics for their industry, and 38 percent are already providing disclosure on all SASB disclosure topics. However, most companies do this with minimal boiler-plate statements about the risks involved. We know two things: companies are already acknowledging these risks, and boiler-plate disclosure is not useful to investors.
Ellis: How are companies responding to the results so far?
Rogers: Some companies have challenged SASB by asking if we believe they are breaking the law by not reporting on material sustainability issues in 10-K filings.
This is about quality—companies often already disclose these issues, but not using standardized metrics. When companies disclose material information in SEC filings using boilerplate language, they are meeting the letter of the law in terms of securities disclosure, but not the investor need for information that is decision-useful related to owning the company stock. SASB is saying we need to move from boilerplate to useful disclosures, so that investors have what they need to make informed decisions.
Right now you can request this information through information brokers who gather and sell it to investors. We are trying to democratize that process so that all investors have access to material sustainability information without having to pay for it.
We are confident, given the underlying research and support of our working groups, that disclosure topics in SASB standards are likely to be material. We’re getting close to a set of standards that does reflect materiality for investors.
Ellis: Today many companies are producing extensive, non-mandatory corporate social responsibility (CSR) and sustainability reports.