Here's an axiom at the core of financial markets that's worth stating explicitly once in a while: Lenders need information to know if borrowers are trustworthy. That's why investors and governments have developed elaborate practices detailing the information companies must or should publicly disclose about how they operate.
These disclosure guidelines aren't written in stone. They're written on paper, and every so often trends in big business recommend that it be updated. The impetus this time: More and more businesses, organizations and investors are adjusting their long-term goals and operations for a world expecting 2 billion more middle-class consumers, scarcer resources and a changing climate. The practice of adjusting these corporate goals and operations travels under the name “sustainability.”
Thursday marked the launch of the Sustainability Accounting Standards Board (SASB), a nonprofit organization that's revisiting corporate disclosure by revealing the value of material information about companies’ environmental stewardship, social policies and corporate governance. The group receives financial support from the Metanoia Fund, the Rockefeller Foundation and Bloomberg LP, the corporate parent of Bloomberg News and Bloomberg.com.
The organization's name is a play on the Financial Accounting Standards Board (FASB), the 39-year-old independent U.S. nonprofit created to develop best practices in financial disclosure and accounting and to inform the Securities & Exchange Commission's regulatory agenda, a role that the new organization will also pursue. “The SEC is our primary stakeholder,” Jennifer Mitchell, SASB’s director of outreach and partnerships, said in an e-mail.
FASB looks strictly at financial issues and U.S. generally accepted accounting principles. SASB is formalizing a relatively new line of inquiry, one that's material to investors but falls outside the domain of GAAP. “The world has changed dramatically since FASB was created, and other forms of capital are increasingly material,” Mitchell said.
SASB will produce what it's calling a “materiality map,” which scores key sustainability issues across 10 sectors. Inherent differences among industries will require that each sector refine its own sustainability disclosure practices. For example, "fatalities per 1,000 employees" is a more useful indicator in mining than in banking; or "amount in dollars invested in coal-fired power generation" might be a more useful indicator in banking than it is in apparel-making. Eventually, the information disclosed through newly developed best practices may be included in annual 10-K forms and other kinds of traditional corporate reporting.
The SEC has asked SASB to brief its analysts as they complete their assessments of materiality by sector, according to Mitchell.
The initial set of draft standards will be available in the first quarter. ``Investors and exchanges have already started to follow SASB's work,” Mitchell said. “But our standards-development process is only starting.''
Update: Since this article was first published, SASB added Generation Investment Management LLP to its online list of supporters.
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