SASB has announced a new educational program focused on teaching professionals how to identify, manage, and evaluate sustainability topics relevant to the company’s bottom line. This new program is called the Fundamentals of Sustainability Accounting (FSA) Credential.
Nicolai Lundy is the Director of Education for the Sustainability Accounting Standards Board (SASB) where he oversees SASB’s educational products. His responsibilities include designing value-add educational programs, leading program development, and identifying opportunities to improve existing programs. Currently, SASB offers the Fundamentals of Sustainability Accounting (FSA) Credential Level I exam to the public, with most test takers coming from the sustainability and responsible investing fields. Other educational programs, including the FSA Level II exam, are in development.
What is the connection between a company’s sustainability performance and financial performance?
There is interesting research out by Harvard University that looks at how well a company performs on material versus immaterial topics, as identified by the SASB accounting standards. Not all issues and indicators are relevant or material to a company and each company needs to prioritize what is most material to them.
For example in the automotive industry, management’s relations with unionized labor have an impact on the company’s operations. In the mortgage finance industry, more frequent extreme weather events impact homeowners’ ability to make payments and/or their property value.
Industries that are similar need to prioritize and find opportunities for revenue growth by focusing on a limited number of sustainability issues that impact financial performance. SASB standards help companies put sustainability into the context of such impacts as revenue, cost of capital, and more traditional metrics. While SASB standards are a tool, ultimately each company determines what is relevant and material to them.
What benefit does the FSA provide that other programs might not?
The FSA provides the fundamentals of sustainability accounting. Test takers learn about the link between sustainability performance and material financial impact. There are a host of programs that look at sustainability from a wide range of perspectives, but the FSA is unique in helping to identify the materiality link.
One of the biggest challenge we needed to solve was how to help sustainability professionals communicate with senior executives and investors, in terms of how sustainability impacts the financial performance of the company. Similarly, investors are actively looking for standardized metrics that help them understand a company’s performance on the most material sustainability factors. We needed to provide a common language and framework that everyone could use in order to get on the same page.
As we were developing the program, we solicited feedback from many people across multiple industries. As a result, the course reflects input from the wide range of sustainability and non-sustainability professionals for which it’s designed.
One thing to note is that Level 1 of the FSA Credential provides a common language and framework to help companies use the same vernacular and focus on the sustainability topics that are most relevant to their organization.
Level 2 – which is currently under development and will be rolled out next year, helps test takers understand how sustainability can inform corporate performance management and investment analysis. Level 2 is about practical application and case studies.
We piloted the exam this past summer with more than 130 test takers. In the last week of October, we rolled the program out to the public and more than 190 people have signed up.
So far, about 100 people have passed the exam. Seventy-seven percent of test takers passed the test on the first try. The first round of test takers are the leading edge adopters of their industries.
Why is it important to understand the legal context of material sustainability?
Materiality is a legal concept that affects what companies have to report to investors. As per the U.S. Supreme Court definition, information is material if it impacts the financial condition or operating performance of a company.
When considering material information, companies and investors have typically emphasized financial information. But in today’s world, sustainability information can also be material. The problem is that until now, companies have not had guidance on what sustainability information to disclose or how to disclose it. This is the problem SASB was designed to solve.
Not disclosing material sustainability information can present risks, including lawsuits, shareholder resolutions, and investigations. For example, the New York Attorney General recently investigated both Peabody Energy and Exxon Mobil for inadequate disclosure of climate risk..
How does the language used compare with say natural capital accounting or reporting tools like GRI?
The FSA Credential covers topics that overlap with natural capital accounting. The curriculum includes social capital, natural (or environmental) capital, leadership, and governance.
The curriculum isn’t so prescriptive that it defines how a company should implement each program. We don’t advise people on how they would collect data, for example. We do help them leverage SASB standards for decisions related to internal management and external disclosure.
What skills are needed to evaluate corporate performance based on sustainability factors?
Professionals working in sustainability are looking for ways to integrate SASB standards into the work they already do. We’re seeing a broad range of applicants from across company divisions and departments who want to understand how sustainability impacts operating conditions and financial performance. We are also seeing interest from people who are new to the industry, like M.B.A’s and college grads, in addition to people who have ten years or more experience. Many see the FSA as a way to gain a competitive advantage.
If readers would like a snapshot of who has already taken the test, they check out some test-taker profiles on our website: http://fsa.sasb.org/testimonials/.
The most important skill a professional needs is the ability to identify what sustainability issues really matter to companies in a given industry. There are so many potential topics and impacts to think about, but being able to find the signal in the noise is paramount.
Can you provide an example of an industry-specific use of the standard that has helped with corporate strategy or investor relations?
In one example, I’ve spoken with a company in the steel and iron industry, which has traditionally not been a market leader with regards to sustainability. These companies are resource and process intensive and often, not environmental friendly. They are also now under great demand from shareholders and other stakeholders to be transparent about their environmental impacts. Using SASB standards has helped that company’s Investor Relations team prioritize sustainability information to communicate to their investors and determine what data they need to collect.
What steps should professionals take if they want to learn more about linking material sustainability to financial performance?
Start by reviewing the research completed by Harvard University called “Corporate Sustainability: First Evidence on Materiality,” http://www.hbs.edu/faculty/Publication%20Files/15-073_8a7e13e5-68c5-4cc3-a9a0-a132bbef3bc7.pdf. This work will help you understand the relationship between sustainability and financial performance with more clarity.
Then leverage the tools we’ve provided on the SASB website – www.sasb.org. There you will find a materiality map that we have constructed listing thirty sustainability topics relevant to various industries. Take a few minutes to explore the map. Understand that not every topic impacts every industry in the same way. The map will help your company determine what is relevant and material.
Finally, dig into the details. Once you get an understanding of what is material to your organization, then consider how the FSA Credential http://fsa.sasb.org/ could support your management of sustainability issues, reporting the business case internally, and disclosing relevant information to investors.