Sustainability Group Issues First Sector-Specific Standards to SEC
Bloomberg BNA — The Sustainability Accounting Standards Board (SASB) July 31 released its first set of sector-specific standards for reporting on environmental, social, and governance issues, starting with the health care sector.
Health care is one of 10 sectors for which SASB has been developing voluntary standards for disclosing nonfinancial information as part of mandatory U.S. Securities and Exchange Commission filings, such as annual 10-K reports.
While sustainability already can fall under SEC's requirement for addressing all material issues in the 10-K form, “what's missing right now” is an infrastructure for reporting, Jean Rogers, founder and executive director of SASB, told BNA.
“What's needed is an infrastructure in order for companies to understand what issues are likely to be material and a standardized form of disclosure that makes the information useful to investors,” Rogers said.
SASB's health care standards cover six industries, including biotechnology, pharmaceuticals, medical supplies and equipment, health care delivery, health care distributors, and managed care. Companies are asked to report on issues like climate change and natural disaster risks, which could pose “physical threats” to health care delivery and “create challenges in serving affected populations,” according to the standards.
The standards could help health care companies compare their sustainability performance against their peers and benchmark their performance within the industry, she said. They also are intended to provide investors with a more complete view of a company's risks and opportunities.
‘Broad Range' of Sustainability Issues
Rogers said SASB's standards development process started with the health care sector because it reflects a “broad range” of sustainability issues.
The health care sector generates about 8 percent of U.S. greenhouse gas emissions, SASB said. It also operates 24-7, with high water and energy use and solid, biohazardous, and hazardous waste production.
But only about 20 percent of companies in the health care sector disclose industry-specific sustainability information, according to SASB research. About 35 percent of health care companies do not disclose material sustainability issues, while another third do not go beyond “boilerplate” statements.
Rogers encouraged publicly listed health care companies to start integrating SASB's standards into their financial disclosure reports for 2014.
Rogers said the issues identified in the standards are likely to apply to “most, if not all companies” within the health care sector because they were prioritized by research, a public comment period, and industry working groups. Members of the industry working groups included Pfizer, Calvert Investments, and others that represent publicly traded companies with more than $800 billion in market capitalization and investment firms with more than $952 billion in assets under management. The research process included technology, data, and analytical tools from Bloomberg, which is the parent company of BNA.
Reporting Standards for Financial Sector Next
SASB plans to release in the coming months its next set of draft sustainability accounting standards for the financial sector, followed by technology and communications. The financial sector, which covers banking as well as insurance and consumer finance, looks “very different” compared to health care, which Rogers said is “the whole idea” of writing standards at the sector level.
“Working at that level gives you a really unique profile of characteristics,” she said.
Aulana Peters, former commissioner of the Securities and Exchange Commission, said SASB's industry-specific standards support SEC's mission to protect investors and maintain efficient markets.
“In today's world, where intangible assets comprise a significant portion of S&P Market Value, investors need industry-specific data on non-financial factors which are important to risk mitigation and long-term value creation,”
Peters said in a statement. “SASB's sustainability accounting standards for the Health Care sector will yield useful and comparable information that supports the resilience of our capital markets.”
The standards for health care and other sectors will be updated regularly, which Rogers said will involve “a continual process of scanning the landscape for material issues” and “looking at current issues to see that we have the best way to measure them.”
SASB's efforts complement similar international initiatives, such as the International Integrated Reporting Committee, the Global Reporting Initiative, and the Carbon Disclosure Project, also known as CDP.