Today, we’ll be discussing SASB, UN SDG’s, PRI and TCFD. Later we will talk about our expectations for the future of reporting standards, as well as regulation.
Let’s go!
Sustainability Accounting Standards Board (SASB)
Participants: Financial institutions and non-financial corporates
Audience: Investors
Focus area: Sustainability (environmental, social, governance)
Created in 2011
The SASB Standards were developed with one specific audience in mind: investors. The goals of these standards is helping businesses identify, manage and communicate to investors sustainability information with implications for finance.
SASB describes for 77 different industries, the sustainability topics that are financially material, and thus the topics on which the businesses in these industries should report. For example, according to SASB, home builders should report on their ecological impact, labor practices, product design and lifecycle management, and business model resilience. For each material topic, accounting metrics are given. For home builders’ ecological impact, these are among others number of lots and homes delivered in regions with high or extremely high baseline water stress, and amount of monetary losses due to legal proceedings associated with environmental regulation.
Helping businesses manage their environmental impact is thus not the goal of these standards. Helping businesses manage their financial risks as a result of ESG-related risks is. That’s not good or bad. It just means you should clearly know why you’re reporting, before choosing your reporting standard(s).
United Nations, Sustainable Development Goals (UN SDG’s)
Participants: Financial institutions, non-financial corporates and governments
Audience: General stakeholders
Focus area: High level sustainability
Created in 2015
The UN describes The 2030 Agenda for Sustainable Development, adopted by all UN member states in 2015, as a shared blueprint for peace and prosperity for people and planet, now and into the future. The core of this agenda are the 17 Sustainable Development Goals. They are very high level goals in five categories: people, planet, prosperity, peace and partnership. They include gender equality, clean water and sanitation, climate action, affordable and clean energy, and zero hunger.
They are not a reporting standard as such, but can be seen as guidelines for corporate social responsibility programmes. Companies using the SDGs in their reporting, often indicate to which SDG each facet of their CSR-strategy contributes.
We would advise organisations to use the SDGs as a thought frame for determining how their organisation affects the Goals, for inspiration for their CSR-strategy, and to communicate how their strategy contributes to the SDGs. We recommend not to rely on the SDGs for ESG-reporting.
Principles for Responsible Investment (PRI)
Participants: Financial institutions, non-financial corporates and governments
Audience: Investors and asset owners
Focus area: Sustainability related investment decisions
Created in 2006
Also an odd one: PRI itself is not a reporting standard. PRI is a voluntary initiative that encourages investors to use responsible investment to better manage their risks. On top of that, PRI does encourage its signatories to report annually on their responsible investment activities.
PRI consists of six principles. These are quite general: “We will incorporate ESG issues into investment analysis and decision-making processes” and “We will each report on our activities and progress towards implementing the Principles”. Within each principle, a menu is presented of possible actions that can help towards implementing that principle. Think of: “Advocate ESG training for investment professionals” and “Disclose how ESG issues are integrated within investment practice”.
Our advise on this is in line with our advice on the SDGs: use them as a thought framework, as inspiration for your investment strategy, and communicate on how your strategy contributes to the principles. Use other frameworks for ESG-reporting.
Taskforce on Climate-related Financial Disclosures (TCFD)
Participants: Financial institutions, non-financial corporates and governments
Audience: Investors and lenders
Focus area: Climate risk
Created in 2006
Like SASB, also TCFD focusses on improving reporting on sustainability related financial information. TCFD does this specifically for climate-related topics, as TCFD believes that financial markets need clear, comprehensive and high-quality information on the impacts of climate change. The overall goal of TCFD is more effective risk assessment, better-informed capital allocation and better strategic planning in the light of short, medium and long term risks.
TCFD has developed a framework that helps organisations to effectively disclose this information, within their existing reporting processes. This framework includes advice on disclosure on governance, strategy, risk management and metrics and targets. For example: “Disclose the organization’s governance around climate-related risks and opportunities” and “Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material.”
At Salacia, we’re all about increasing transparency. TCFD proposed – in our opinion – effective recommendations for giving investors, lenders and insurers a clear view of which companies will prosper as regulations evolve, the environment changes, customer behaviour grows more climate conscious and new technologies emerge.
