SASB: The use case for Australian reporting entities
The Australian Accounting Standards Board (AASB) has erred in removing the SASB guidance from its Sustainability Disclosures Standard. In my view, reporting entities should leverage the SASB Standards to underpin their Sustainability Reporting. SASB provides industry specific guidance on material financial issues, enables investors to benchmark and compare, and provides a basis for identifying, assessing and prioritising relevant material sustainability risks and opportunities.
Background
SASB Standards
Founded in 2011, the SASB Standards surface information about sustainability related risks and opportunities that are likely to be useful to investors.
SASB is industry specific, and covers five dimensions - environment, social capital, human capital, governance, and business model. SASB covers 26 key industry specific issues from labour practices, employee health through to greenhouse emissions.
SASB dimensions and key issues.
SASB gained prominence when Blackrock required investee companies to disclose corporate performance in line with SASB metrics and recommendations.
In August 2022, the International Sustainability Standards Board (ISSB) assumed responsibility for the SASB Standards, and now the SASB Standards are an important source of guidance for fulfilling the IFRS Sustainability Disclosure Standards, i.e. In addition to IFRS Sustainability Disclosure Standards: 55. an entity shall refer to and consider the applicability of the disclosure topics in the SASB Standards.
AASB Sustainability Reporting
The Australian Government has committed to introducing internationally-aligned mandatory climate-related reporting standards from 1 July 2024. The AASB has produced an exposure draft ED SR1, which aligns to ISSB IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related disclosures, with modifications for Australian matters and requirements necessary to meet the needs of Australian stakeholders.
The AASB has proposed to remove the requirement for an entity to consider the applicability of SASB Standards due to a limited public consultation period for Australian stakeholders to consider the ISSB proposals, the proposals go beyond climate-related risks and opportunities, and the SASB Standard are US-centric and not representative of the Australian or Global Market.
Benefits
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Contrary to the AASB proposal, the SASB Standards are globally recognised, adopted in 170 countries, have been downloaded 1.2M + times, and applied to $81T+ funds under management. As such, the SASB Standards facilitate cross industry comparison and benchmarking world wide.
SASB Standards are focussed on financially material sustainability issues. Adoption of SASB can help entities meet an increased demand for sustainability information, and communicate with investors on a broader range of issues.
The SASB Standards comprise 77 specific industry standards, allowing entities to report on sustainability issues most useful and relevant to their sector, which enhances the usefulness of their disclosures.
Strategic Advantages
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Future-Proofing: early adoption of SASB standards can prepare reporting entities for future regulatory change, noting global trends towards more standardised and holistic sustainability reporting.
Competitive advantage: leveraging SASB standards can assist reporting entities to demonstrate a commitment to sustainability, transparency, and better serve the needs of a wide range of stakeholders from ethical investors to consumers.
Risk Management: leveraging SASB standards can aid entities to identify, assess, prioritise and communicate material sustainability risks and opportunities. The standards provide a useful starting point, reference and information for managing risk.
Challenges and Considerations
Implementation Challenges: Given the broad application of forthcoming climate-related disclosures, the competition for capability, and internal training needs will be significant.
Alignment with Other Frameworks: the SASB Standards have been integrated with TCFD (Task Force for Climate Related Financial Disclosures, under the IFRS S1 and S2 Sustainability Disclosure Standards, with SASB a source of guidance, whilst TCFD underpins the core requirements of S1 and S2.
The Global Reporting Initiative (GRI) and SASB have taken steps to ensure their frameworks are complementary, with GRI supporting broad and comprehensive disclosures whilst SASB is focussed on the subset of financially material sustainability issues. Reporting with both these frameworks can provide a comprehensive holistic view of corporate performance and sustainability.
Where to from here?
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Australian entities should leverage the globally recognised SASB standards and provide investors with an ability to benchmark and compare with peers.
Adoption will future proof reporting from regulatory change, drive effective risk and opportunity management, and provide an important competitive advantage enabling entities to communicate more effectively with investors and other stakeholders.
Unfortunately, the AASB has limited its Sustainability Standard to climate-related concerns, failing to recognise global trends, stakeholder needs regarding sustainability information, and the breadth of corporate responsibility.
