SASB and GRI step up project to align reporting standards
An upcoming move by two of the dominant organizations developing corporate environmental, social and governance (ESG) performance tracking systems could bring sustainability reporting one step closer to the financial mainstream.
The Sustainability Accounting Standards Board (SASB) and the Global Reporting Initiative (GRI) announced ahead of the Global Climate Action Summit (GCAS) last week that they will move forward soon with a Bloomberg-funded effort to bring their standards in line with each other wherever possible.
The joint effort is aimed at simplifying reporting standards to align with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), a global group established by the Financial Standards Board after the G20 summit in 2015. The TCFD’s recommendations, released in June 2017, offer a disclosure framework built around getting financial markets participants the information they need about how climate-related issues may affect their companies or investments.
"Asset owners in the last 18 months have increasingly been interested in this set of issues," said Brian Deese, global head of sustainable investing at BlackRock, the world’s largest investment management company, during a panel discussion at GCAS.
Since the United Nations launched the Principles for Responsible Investment in 2006, the number of investors that have signed on to the voluntary agreement to promote ESG issues and incorporate them into investment analysis and decision-making processes has grown from fewer than 100 to more than 1,900. "The assets under management associated with PRI signatories is approximately 50 percent of global assets under management," said Matthew Welch, president of the SASB Foundation, at "Reporting Your Climate Commitments," a Sept. 12 GCAS affiliate event.
More specifically, we’re talking more than $81 trillion. "That’s significant," Welch said. "This is a huge body of folks who have committed to integrating climate and other ESG considerations into their investment decisions."
The state of sustainability reporting
GRI established the first corporate sustainability reporting framework in 1997, and more than half the companies that report sustainability information use its standards. The organization approaches sustainability reporting from a broad perspective, incorporating information aimed at a variety of stakeholders including investors, employees and civil society, and consequently including a wide range of data. SASB was founded in 2011, and its work focuses specifically on developing standards for sustainability information that would be material to investors — that is, data that could affect their financial decisions about a company.
SASB standards are still provisional but will be finalized and codified in October, Welch said. Although GRI and SASB are among the dominant frameworks for sustainability reporting, other organizations have promoted their own standards as well. The TCFD drew from existing systems to develop its own reporting framework aimed at promoting alignment across existing disclosure regimes."GRI is trying to frame what is the impact that organizations are having on the world, which is a different question than what impact is the world having on the organizations," said Eric Hespenheide, president of the organization’s board, at the GCAS affiliate event. "We have a lot of debate within the GRI as to, are we moving away this idea that there should be a holistic reporting of the good and the bad so that it’s a net view of the company or the entity reporting as a whole, as opposed to saying: OK, I think I’ll just talk about water, or I’ll just talk about emissions, and leave all this other stuff that I might be doing off to the side."
SASB and GRI were built using different approaches, but in areas where they overlap, a two-year Bloomberg grant will help the organizations harmonize their standards. The project also will identify areas where the standards area already substantially similar, as well as areas where they don’t overlap or can’t harmonize.
How CBRE introduced SASB metrics
Despite the surge in investor demand for ESG data, sustainability disclosure challenges can be daunting, and even companies that issue sustainability reports like clockwork can resist including sustainability data in traditional financial reports. CBRE, the world’s largest commercial real estate investment and services firm, has supported sustainability reporting for the past 11 years using the GRI standards. After provisional SASB standards were released in early 2016, the company decided to look into using those guidelines as well.
"The SASB standards are of particular interest to our investors, and as a publicly traded company, our investors are an important stakeholder for us," said Jennifer Leitsch, CBRE’s director of corporate responsibility, during the GCAS event. "Once we started to dig into the SASB standards for our industry, we found out that there was some alignment with what we were already reporting, but that the SASB standards really asked us to go deeper."
For example, the company already was revealing information about so-called dual agency transactions — in which the company represents both the owner and the buyer or lessor of a property — to surface the potential for conflicts of interest underlying such transactions. The SASB standards would have required CBRE to calculate the amount of revenue it generated via such dual-agency deals.
That additional specificity and detail, though, weren’t the main hurdles to adoption. "When I started talking about SASB internally, it really was kind of a non-starter," Leitsch said. "Because SASB was really emphasizing putting the information in the 10-K, it was pretty much killing any conversation I was trying to have." That was partly because even though CBRE had been reporting the sustainability data for more than a decade, it hadn’t been audited like the financial data disclosed in a typical 10-K, the annual financial report U.S. regulators require publicly traded companies to file. So while CBRE did disclose data under SASB guidelines, those disclosures were not included in its annual financial report.
Getting over the hurdles
The kind of verification auditing provides is a key principle, GRI’s Hespenheide said: "If I’m going to make a materially impactful financial decision based on that information [provided by a company], I’d like to know that it can be verified and that others would stand behind it." But if investors aren’t reviewing sustainability reports in addition to financial statements, they may miss critical information.
That’s one reason the TCFD report includes a recommendation that organizations provide climate-related disclosures in their public financial filings each year, as it concluded that climate-related issues in many cases would be material to investors. But audited financial statements must adhere to stricter standards than other reports and are more expensive and complicated to produce.
Auditing is just one obstacle to integrated reporting. In a global company, gathering all the information needed to meet reporting standards can be challenging, as Leitsch of CBRE found when she experienced resistance in reaching out to other executives for data. "In the end we were able to collect data for all the SASB disclosures for our industry," she said. "It wasn’t complete full global data. It was some data for some regions and some data for other regions and some of the data was available globally, but it was something. And something is better than nothing."
Leitsch said she’s looking forward to participating in the review process for the SASB standards after they’re codified. "That information is something that our investors are really asking for," she said. "It absolutely complements the GRI standards; you can use them together."
With as much as $43 trillion in global assets at risk from climate change (PDF) between now and 2100, the sooner corporations can commit to fully disclosing those risks, the better.