The mission of the Sustainability Accounting Standards Board is to develop and disseminate industry-specific accounting standards for material sustainability issues for use by U.S. publicly-listed corporations and their investors, such that sustainability performance can be evaluated alongside financial performance. GreenBiz.com Executive Editor Joel Makower talked with the organization’s executive director, Jean Rogers. Following is an edited version of their conversation.
Joel Makower: When you talk to big companies about SASB and they ask, in effect, "What's in it for me?" What do you tell them?
Jean Rogers: There are two primary groups of stakeholders and we're working at the intersection of the value proposition for both of those groups. Our standards and the information that derives from them on material sustainability issues needs to be useful to both stakeholders and to investors and companies. I think that's where the value proposition comes from.
It is actually that intersection of information that is relevant to companies for management of key issues, and for investors because it's decision-useful. That is, they can discern differences and incorporate them into their decision-making process if they're looking at securities. So, that is the nexus that we're playing within: information that is useful to both.
When we talk to big companies about what's in it for them, they like that we're playing at that intersection because they are now in a position of responding to multiple requests from investors and NGOs. They describe it to us as death by a thousand cuts.
Everybody comes at them from a different direction, with different issues, wanting disclosure on different things and in different ways. All of that takes a tremendous amount of time and focus away from the core business. Many companies view responding to requests for ESG [environmental, social, and governance] information as a distraction — something that takes them away from what they're really trying to do.
So, our key value proposition to them is, we're going to streamline that. We're going to focus on the key material issues that are of interest to both you, in order to manage risk and opportunities, as well as of interest to investors. That will eliminate much of the questionnaire fatigue that companies feel and the inquiries from investors that are often overlapping but slightly different from one another.
The idea of it being very cost-effective is a key part of our value proposition — a cost-effective way to communicate on material issues to investors.
We also are giving companies a heads up on the key issues to focus on that are most likely to create short-term and long-term value and, therefore, it’s probably a good idea to think about managing these key issues in addition to reporting on them.
We also talk with companies about leveling the playing field. I'm sure that you've heard companies who are leaders talk about the concern that they're out there in front. The reasons they will cite often are that they're afraid of liability. What they actually mean is liability for putting information out there that their competitors are not necessarily disclosing.
Interestingly, the question of liability is, as we speak, being turned on its head. With greater clarity on material issues, the companies that are actually at risk are the companies who are failing to disclose material information. That is the greater risk as we have more clarity and more understanding of what is actually material.
With climate change guidance, for example, the SEC has issued interpretive guidance. We now understand more about how they view materiality of climate change and that the penalties, the consequences, of non-disclosure of material information are quite significant. So, noncompliance is a much greater risk now on material issues than is the perception that putting information out there creates some liability.
Companies are not often thinking of it in that way. Once we say to them, "If you're not compliant in terms of disclosing material issues, you can lose your exchange listing, you can lose your directors and officers insurance, you can be subject to fines — sometimes multi-millions of dollars — and even imprisonment for your directors under Sarbanes-Oxley.”
So these consequences of omission are actually much scarier than the perception that if you put out there some information about your ESG performance, you're somehow at risk.
There are shareholder resolutions now arising from climate change, where shareholders are calling for information, and those — no matter how they get resolved — a very costly proposition for companies to go through.
Finally, I think that we gain traction with companies when we talk to them about the framework within which we are operating — the lever that we have chosen to pull — which is the Form 10K, which already is a legally mandated document. Material issues are already required to be disclosed in the Form 10K. So we're not calling for any additional regulation. We're just supporting the SEC, saying, "We'll take this off your hands. We'll prioritize the issues across industries and work within your framework in the way that you define and describe materiality. We'll support you by doing the tests for non-financial information and looking at the evidence and being an independent, unbiased, third-party view of what issues are material."
And companies, as you might suspect, like the fact that we're not calling for regulation and that it's essentially a market-based initiative.
Next page: How companies are responding