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Sustainability Accounting Standards: The Missing Link in Corporate Reporting?

The Sustainability Accounting Standards Board claims to fill a void in current corporate disclosure by providing evidence-based standards for reporting on materiality, targeted at the "reasonable investor". Is this the missing link?

Submitted by: Elaine Cohen

Posted: Oct 19, 2012 – 11:05 AM EST

Tags: sasb, gri, csr reporting, sustainability reporting, materiality, esg


By Elaine Cohen

Arguably, the two major issues with corporate sustainability disclosures today relate to stakeholder engagement and materiality assessment. Few and far between are the companies that have developed sophisticated stakeholder engagement approaches and are able to leverage those to gain true insight into the way they are perceived and the way their business activities impact people, communities and society in general.

Despite valiant efforts by the NGO AccountAbility to promote a Stakeholder Engagement Standard, the practice is still hit or miss, with most companies referring, inadequately, to employee surveys or customer satisfaction rankings as evidence of dialogue. Establishing a voluntary Stakeholder Engagement Standard has never reached critical mass, neither in terms of the implementation of good process, nor in the reflection of stakeholder influence in core issues that generally inform corporate Sustainability Reporting.

Materiality: Neither New Nor Easy

Similarly, materiality is not a new concept for those concerned with sustainability and corporate sustainability materiality frameworkdisclosure. Every report that is written in accordance with the Global Reporting Initiative declares its adherence to the GRI Reporting principles, one of which is Materiality.

Redefining Materiality, a 2003 report by AccountAbility, introduced the 5-part materiality test that should inform sustainability disclosure. The new G4 Exposure Draft, the GRI Reporting Framework overhaul to be launched in 2013, makes an all-or-nothing play for materiality, proposing that Sustainability Report disclosures should be determined, first and foremost, by a materiality assessment of issues in a company's value chain, creating, in the future, tailored reports instead of tick-box shopping lists.

However, simple though it may sound, assessing and prioritizing material issues is not an easy ride for most companies. In the utopian G4 world, materiality assessment will follow due process of stakeholder engagement and assessment of external context – it is not meant to be a list of issues that the CSO cooks up solo.

In an analysis by Framework CR of CR Magazine's 100 best corporate citizens in 2010, 58 percent of companies analyzed did not conduct a materiality analysis. Only 10 percent conducted such an analysis and used it to inform both their sustainability reporting and their corporate 10K financial filings to the U.S. SEC. 

In a report by Fronesys, Materiality Futures, published last year, 140 material issues were recorded by the 30 companies analyzed, showing the breadth of issues that may be considered material, ranging from the most generic, such as climate change, to the most specific, such as hazardous chemicals.     

Mapping Materiality Means Money

This is where the Sustainability Accounting Standards Board (SASB) believes it can make a difference. It promises to be the “definitive, trusted voice regarding the materiality of sustainability issues within industry requiring disclosure to investors and the public” through the development of a proprietary tool, the Materiality MapTM, that:

“weighs the priority of sustainability issues by industry across 10 sectors...For issues deemed most material in each industry through an evidence-based approach, SASB will develop key performance indicators unique to each of 89 industries suitable for disclosure in the Form 10-K, thereby facilitating comparable corporate reporting.”

In other words, the SASB standards aim to become the future of both financial and sustainability disclosure, providing guidance for the missing link through a set of material indicators by sector and voluntary disclosureindustry which no self-respecting voluntary corporate reporter will be able to avoid referencing and which no “reasonable investor” (the SASB target group) will be willing to overlook.


Because, for far too long, nonfinancial issues have been treated as just that. The new realization is that nonfinancial issues are now very financial issues, capable of creating big (material) swings in a company's long-term growth and profit potential, which can no longer be marginalized in the corporate consciousness or in its reporting.

Over the next three years, the SASB intends to publish such standards for 10 major industry sectors.

Everybody Benefits

According to SASB, companies will benefit from these new Materiality Standards as they will be better able to communicate their ESG performance and better able to manage ESG risks and opportunities. Investors will be able to weight portfolios according to sustainability risks and compare peer performance more effectively. Analysts will be able to integrate ESG issues more effectively into company valuations.

This makes sense, of course, if use of the Materiality Standards reaches critical mass, which will Sustainability Accounting Standards Boardrequire additional work by the vast majority of reporting companies and a real stretch by the investor community. There is no doubt that “template materiality” by sector will provide a valuable reference for corporate reporters, complementing the GRI Framework, and will serve to guide investors about what's most important.

The Materiality Map has the potential to catalyze a new kind of conversation between companies and investors, by bringing sustainability clearly into the financial frame.  

Yet, the SASB aspiration may be a double-edged sword: it may relieve companies of their responsibility to engage in due process for assessing material issues by providing a convenient, new, ready-made materiality checklist. Similarly, it may provide investors and analysts with a short cut to required disclosures that avoids the need for real understanding of the issues facing a single company, not an entire sector.

As with all things new, care will have to be taken to avoid the Materiality Map from becoming an off-the-shelf approach to materiality.

Companies will still need to engage in dialogue with stakeholders and apply rigorous process in assessing their own, very specific, material issues and their long-term significance for people, planet and, of course, profit.   

The opinions, beliefs and viewpoints expressed by CSRwire contributors do not necessarily reflect the opinions, beliefs and viewpoints of CSRwire.

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