IFRS Foundation

Assessing Your Readiness

Note: As of August 2022, the International Sustainability Standards Board (ISSB) of the IFRS Foundation assumed responsibility for the SASB Standards. The ISSB has committed to maintain, enhance and evolve the SASB Standards and encourages preparers and investors to continue to use the SASB Standards. The ISSB has confirmed that industry-specific disclosures are required and, in the absence of specific IFRS Sustainability Disclosure Standards, companies must consider the SASB Standards to identify sustainability-related risks, opportunities and related information to disclose. The guidance in this Implementation Primer is intended to serve as a useful reference for entities applying the SASB Standards independently from the ISSB Standards. Entities using the SASB Standards as part of their implementation of ISSB Standards should consider the relevant ISSB application guidance.

With those key topics identified, the company will then need to generate useful, high-quality data to effectively manage them and to communicate performance to investors. Thus, the company will also want to review and evaluate the performance metrics associated with each SASB disclosure topic, thereby helping it deliver meaningful business intelligence to decision makers inside and outside the firm.

Based on feedback from the many companies that have already implemented SASB Standards, this process can be facilitated by the following approach:

  1. Review and understand SASB metrics
  2. Perform a gap analysis
  3. Identify SASB metrics to be disclosed
  4. Ensure data reliability

Review and Understand SASB Metrics

Investors, directors, and company management don’t just need to know which sustainability topics a company has prioritised for disclosure; they also need to know how effectively those issues are being managed. Therefore, for each disclosure topic identified in an industry standard, SASB selects or develops decision-useful accounting metrics to capture company performance on key aspects of the topic. Taken together, they characterise a company’s positioning with respect to business-critical sustainability issues and the potential for long-term value creation. Thus, like traditional financial accounting metrics, they can be used to evaluate past performance as well as to provide insight into future performance.

SASB Standards are designed to provide a cost-effective way for companies to disclose material, decision-useful sustainability information to investors. To help achieve this, a significant percentage of the metrics in SASB Standards are aligned with initiatives already in use. As part of its standard-setting process, SASB identifies and documents existing metrics and practices used to account for performance on each disclosure topic. When possible, SASB harmonizes its standards with existing metrics, definitions, frameworks, and management disclosure formats to minimise the corporate reporting burden. SASB Standards reference standards and metrics from over 200 organisations, including the World Health Organization (WHO), International Standards Organization (ISO), Organisation for Economic Co-operation and Development (OECD), IPIECA (formerly the International Petroleum Industry Environmental Conservation Association), United Nations Environmental Programme (UNEP), International Labour Organization (ILO), the Global Real Estate Sustainability Benchmark (GRESB), and more.

Companies should review the metrics and accompanying technical protocols associated with their selected SASB disclosure topics to familiarize themselves with not only the top-line metrics themselves, but the suggested methodologies for collection, calculation, compilation, and presentation. The technical protocols help ensure that the company—and its investors—can effectively compare performance to that of peer companies or to industry benchmarks.

Businesses and investors around the world can use SASB Standards to better identify, manage, and communicate the financially material sustainability risks and opportunities they face. Currently, more than three-quarters of SASB metrics are appropriate for use by companies and investors globally, and the remaining metrics are under review to enhance their global applicability.

A company will be more or less likely to encounter a metric of questionable relevance depending on the industry or sector in which it operates. This is because certain business models and industry regulations tend to vary across jurisdictions. For example, there are significant differences in how the Health Care sector and its component industries and organisations are structured in various countries and regions. As such, certain SASB disclosure topics related to access and affordability may not be universally applicable. On the other hand, even when industries may be structured similarly in principle, differences in the regulatory and socio-economic environments in which they operate may result in certain metrics being less relevant. For example, in the heavily regulated Financials sector, SASB metrics that measure performance on topics such as financial inclusion, selling of consumer finance products, and discriminatory mortgage lending are less likely to be consistently decision-useful across all geographic regions.

In these and similar cases, a company may wish to:

  • Omit a disclosure topic that is unlikely to have material financial impact.
  • Modify or substitute the accounting metric when the disclosure topic is financially material but the associated metric lacks relevance to the company’s geographic context.

In either instance, SASB recommends the company disclose the omission, modification, or substitution along with the rationale for the change.

SASB’s due process is designed to continually improve the content of the standards and will incorporate a global lens into future assessments of both: 1) the likelihood of disclosure topics to have material financial implications; and 2) the applicability and decision-usefulness of performance metrics—including the approximately one-quarter of existing SASB metrics that may currently be challenging to implement in certain geographic regions.

Perform a Gap Analysis

Because SASB standards address the sustainability topics most likely to be financially material to a business, many companies will find they already track the SASB metrics or similar information. Thus, for each selected disclosure topic, SASB recommends that a company consider how it is currently collecting or reporting relevant performance information.

  • First, a company should assess whether and how it is currently reporting information relevant to each SASB topic in its existing reporting to investors or other stakeholders, including regulators. This will help the company identify opportunities to leverage SASB-aligned disclosure that is already in place. Companies are likely to find that they are already addressing many of the SASB topics in one or more reporting channels, allowing them to leverage existing functions, relationships, and processes to prepare their SASB disclosure and to ensure consistency across channels.
  • Second, a company should evaluate whether and how it is currently collecting information relevant to each SASB topic for internal use, including internal management reporting. This will help the company identify existing data sets that, while not currently reported externally, may nevertheless support its external reporting objectives. Additionally, this process will help the company identify the internal subject matter experts who can best assess what may be needed to ensure data are aligned with the SASB Standard.

In performing this analysis, the company is likely to identify three categories of metrics:

  1. those for which it is already collecting SASB-aligned data;
  2. those for which it is collecting similar data; and
  3. those for which it is collecting no data.

Questions to Consider:

For existing, SASB-aligned metrics, a company may wish to ask the following questions:

✓   What processes are used to collect the data and who is accountable for data accuracy?

✓   How strong are internal controls over the data?

✓   Is the data subject to a governance process, such as oversight by a disclosure committee or a board committee

✓   Is the data assured by an independent third party?

When the company is collecting metrics that are similar to what is called for in its SASB industry standard, it should work with internal subject matter experts, business partners, and/or trusted advisors to evaluate whether the data could be better aligned with the SASB Standard:

✓   Who owns the data internally?

✓   Is the data inconsistent with the SASB Standard because it represents an entirely different metric related to the same topic? Is there a reason the company uses a different metric from that suggested by the SASB Standard?

✓   Is the data inconsistent with the SASB Standard because the company employs different methodologies from those specified in the SASB technical protocols?

✓   What are the associated costs—in terms of time, effort, money, or other resources—to bring the metric into full alignment?

✓   What is the benefit to bringing the metric into full alignment?

When the company is collecting metrics that are similar to what is called for in its SASB industry standard, it should work with internal subject matter experts, business partners, and/or trusted advisors to evaluate whether the data could be better aligned with the SASB Standard:

✓   Who owns the data internally?

✓   Is the data inconsistent with the SASB Standard because it represents an entirely different metric related to the same topic? Is there a reason the company uses a different metric from that suggested by the SASB Standard?

✓   Is the data inconsistent with the SASB Standard because the company employs different methodologies from those specified in the SASB technical protocols?

✓   What are the associated costs—in terms of time, effort, money, or other resources—to bring the metric into full alignment?

✓   What is the benefit to bringing the metric into full alignment?

If a company has not previously collected or reported information on its selected SASB topics, it should develop an understanding of the level of effort required to capture and disclose the suggested metrics. For each new metric identified, the company should work with its cross-functional team to explore the following questions:

✓   Which internal experts are best positioned to review the SASB metric and associated technical protocols to assess the company’s ability to collect the data?

✓   What is the most likely path for collecting the required information and the associated level of time, effort, and cost?

After considering these questions, the company should make a final decision as to which SASB metrics it plans to disclose. In some instances, the company may conclude that a suggested SASB metric does not apply and that it wishes to report an alternative metric. In these instances, SASB suggests that the reason for the modification be disclosed.

In reviewing their industry’s SASB Standard against their existing reporting (both internal and external), many companies are surprised to find they are already collecting much of the information requested. This is largely because the standards are designed to focus on financially material sustainability issues—those a company must manage effectively as a matter of course.

“We found the set of metrics in the SASB Standard for our industry matched and aligned with what we thought was important already,” says Alex Hausman, Director of Purpose Communications and Reporting at Nike. “So, there was a strong overlap between what we were already reporting and what’s in the SASB Standard. We just had to make a few slight tweaks,” he says. Even for metrics that had to be incorporated into this format, it was a straightforward process, Hausman said. “We’re already tracking this information, the data is available, and there’s value to investors and professional stakeholders in the information.”

NRG Energy’s experience was similar. “This is one of reasons we adopted so early on—because when did our gap analysis, we found there was 80 percent alignment between what we were already disclosing and the SASB Standards,” says Sustainability Director Laurel Peacock. “The additional work required to do SASB wasn’t very much. We didn’t have to hire external consultants or contractors,” she says. “I just needed to have a few additional conversations internally.”

Sophia Mendelsohn, Director of Sustainability and ESG at JetBlue, has said her company’s gap analysis also showed considerable overlap between the SASB Standard for its industry and the data already being collected internally. As a result, “Much of the work involved gathering up-to-date figures on metrics we already tracked,” she has noted.

For Daniel Egan, Senior Vice President of Energy & Sustainablity at Vornado Realty Trust, “It wasn’t a heavy lift to complete our SASB disclosures,” but he acknowledges “that’s probably because we’ve been going at it for many years, so we can report out pretty nimbly.” For smaller companies or those with less mature sustainability reporting programs, there’s still a path forward. “If you don’t have metrics readily available, you can discuss your strategy for managing greenhouse gas emissions and then expand on that over time,” says Kristin Peterson, Director of Corporate Compliance at Kinder Morgan. “Just disclose what you’re doing now, regardless of whether or not that exactly matches the standard, and then put a plan in place to report metrics down the road,” she says. “It’s a continuous improvement process, and I feel like investors understand that.”

Ensure Data Reliability

Optimal decision-making requires reliable information. The practice of disclosing sustainability information to investors is relatively new compared to the long history of company financial reporting. As a result, sustainability information has often been captured without the benefit of the processes, controls, and governance that are typically applied to the financial information companies disclose to investors.

SASB believes companies should apply a level of rigor to ensuring reliable data that is substantially similar to that used for traditional financial reporting. Such an approach may involve the application of internal control, the establishment of appropriate disclosure controls and procedures, and the engagement of independent, third-party assurance, among other activities.

Naturally, SASB recognises that companies may face challenges in collecting data, particularly during the first few years of using the standards. In such cases, SASB recommends that companies disclose any data limitations when reporting a metric. This and other considerations are addressed in SASB’s Standards Application Guidance, which supplements the 77 industry standards to ensure information is reported using appropriate boundaries, scope, formatting, and protocols that will help ensure data reliability. Please note: Entities using the SASB Standards as part of their implementation of ISSB Standards should consider the relevant ISSB application guidance.

Evaluate Internal Control over SASB Metrics

An effective system of internal control is the foundation on which reliable reporting and informed decision-making rest. In using SASB metrics to monitor and disclose sustainability performance, a company should consider leveraging its existing internal control framework—typically used to support its financial reporting—and apply that framework to similarly support its internal and external sustainability reporting. The most widely used framework for establishing internal control is the Committee of Sponsoring Organisations of the Treadway Commission (COSO)’s Internal Control – Integrated Framework. The Framework is intended to help companies achieve their strategic, operations, reporting, and compliance objectives. Notably, it includes specific reference to non-financial reporting objectives, suggesting that sustainability reporting objectives could be integrated into a company’s existing internal control framework.

SASB Resources: Internal Control Paper

Internal control generally serves as a first line of defence for companies in safeguarding assets and preventing and detecting errors and fraud. COSO defines internal control as “a process, affected by an entity’s board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance.” The paper Leveraging the COSO Internal Control – Integrated Framework to Improve Confidence in Sustainability Performance Data explores how companies are practically applying controls to sustainability metrics like those included in the SASB Standards.

A company can benefit from setting specific strategic, operations, reporting, or compliance objectives related to SASB Standards. In this context, the company may wish to work with its internal audit and risk management teams to ensure an effective system of internal control can provide management with reasonable confidence that these objectives are met.

Questions to Consider:

✓   Has the company established a strong internal control environment with robust processes, standards, and discipline around financially material sustainability information?

✓   Has the company incorporated SASB topics into its approach to risk management? Has it established specific objectives for managing the topics and reporting the data, and identified and assessed risks to achieving those objectives?

✓   What control activities—if any—has the company designed, implemented, and maintained at the entity level, the transaction level, or the information technology level to mitigate key ESG-related risks?

✓   Does the company have access to timely, relevant, and reliable information to help it assess the effectiveness of its sustainability reporting systems and processes?

✓   How does the company monitor the effectiveness of how it is managing SASB disclosure topics? How does it monitor the effectiveness of its related disclosures?

Consider Disclosure Controls and Procedures

A company that chooses to disclose SASB information in mainstream financial reports may be required to design and maintain well-documented and thorough internal reporting processes, controls, and procedures for the information. However, regardless of where sustainability information is reported, a company is likely to benefit from such an approach, which is intended to ensure that information is collected and communicated to management in a way that facilitates effective oversight and timely decisions regarding required disclosure.

An organisation may wish to leverage its existing disclosure committee to establish formal disclosure controls and procedures for its SASB reporting as a way of answering the following questions.

Questions to Consider:

✓   Which individual(s) or function(s) are responsible for preparing the information needed for each SASB disclosure topic?

✓   How do individuals or business units within the company collect the information to be disclosed? Does each SASB metric have a formal accounting policy that provides clear definitions and guidance for assumptions to ensure consistent data collection, analysis, and reporting across the organisation?

✓   How is the collected information communicated to those responsible for preparing the disclosures? Are these processes well documented, including key risks for misstatements and associated controls to prevent or detect misstatements?

✓   How is information reviewed and revised for publication? What external parties—such as outside counsel, an independent assurance provider, or other advisory partners—are involved?

✓   What is the timeline of all disclosure activities?

✓   What governance processes apply, or should be applied, to the disclosures? Should the SASB information be reviewed by a disclosure committee and/or a board committee?

Consider Independent, Third-Party Assurance

Source:EY, “Non-Financial Performance May Influence Investors” (April 2017)

Through internal control, internal audit, agreed-upon procedures (AUP) engagements, and other measures, a company will be able to establish a reasonable level of internal confidence in the quality of its reported sustainability information. However, although independent third-party assurance of reported sustainability information is required in only a handful of jurisdictions (e.g., South Africa), many companies voluntarily elect to seek external assurance of their sustainability disclosures to assure investors that the information is reliable.

Questions to Consider:

✓   What are the relevant laws and standards—if any—related to the assurance of sustainability disclosures?

✓   What steps might the company take with internal audit and/or third-party advisors to establish internal confidence in data quality before investing in an external assurance engagement?

✓   Have the company’s investors expressed an interest in obtaining assurance over all financially material sustainability information or only with respect to key data points?

✓   What level of assurance is appropriate in the context of the company’s sustainability reporting objectives—reasonable (exam) or limited (review)? How might the company’s selection of a disclosure channel influence this decision?

SASB Resources: Standards Application Guidance

SASB’s Standards Application Guidance contains information that will be helpful to a reporting company as well as its assurance partner, should it elect to obtain independent, third-party verification. For example, reporting boundaries must be set—and criteria defined—at the metric level. Unless otherwise specified in the industry standard(s), SASB recommends:

  • That a company disclose sustainability information for itself and for entities that are consolidated for financial reporting purposes as defined by accounting principles generally accepted in the jurisdiction of its financial reporting;
  • That for consolidated entities, disclosures be made, and accounting metrics calculated, for the whole entity, regardless of the size of the minority interest; and
  • That information from unconsolidated entities not be included in the computation of SASB accounting metrics. A company should disclose, however, information about unconsolidated entities to the extent that the company considers the information necessary for investors to understand the effect of sustainability factors on the company’s financial condition or operating performance (typically, this disclosure would be limited to risks and opportunities associated with these entities).

Please note: Entities using the SASB Standards as part of their implementation of ISSB Standards should consider the relevant ISSB application guidance.

Should a company elect to engage an assurance partner, the metrics and underlying technical protocols included in SASB Standards are designed to constitute the basis for suitable criteria in such an engagement. In the U.S., the American Institute of Certified Public Accountants (AICPA) has published Attestation Engagements on Sustainability Information (Including Greenhouse Gas Emissions Information), which provides detailed guidance for independent third parties on planning an attestation engagement on sustainability information, performing the engagement, and forming an opinion or conclusion and reporting on the engagement.

SASB standards are designed to support independent, third-party verification and an increasing number of companies are electing to have their SASB data assured. Assurance signals to markets that the information is reliable, but the assurance process can also have internal benefits. “External assurance can be helpful in increasing the robustness of internal reporting so that the leadership can rely on it for performance management” says Roger Seabrook, Vice President of Finance, Marketing & Sustainability at Unilever. “It ensures that the fundamentals are in place–clear definitions, good data quality, and reporting discipline.”

Vornado Realty Trust, which undertook an examination engagement to obtain reasonable assurance over its SASB data, found the process helpful in ensuring it had its own collection, validation, and reporting procedures nailed down. Senior Vice President of Energy & Sustainability Daniel Egan says it “really was a deep dive into not just the data itself but also the processes by which we obtain it and the quality control protocols we have in place for each data set.”

Similarly, at Kinder Morgan, Director of Corporate Compliance Kristin Peterson welcomed the opportunity for an independent third party to “get in the weeds” of the company’s sustainability data. “It’s so nice to have someone else come in and look for issues and trace the data from point A to point B,” she says. The company’s assurance partner “gave us great feedback that helped confirm our disclosure is consistent year-over-year.”

Laurel Peacock, Sustainability Director at NRG Energy, agrees that the assurance process can be helpful. The company’s electric generation portfolio includes a mix of legacy and M&A assets and “every plant could be doing things a bit differently,” Peacock says. “To be able to streamline the process, reduce human error, and provide positive support to our plants was very beneficial.”

“Putting new eyes on the data and challenging it raises the bar,” Seabrook says. Assurance professionals “don’t just come along and sniff at the numbers—they do proper testing.” When issues arise, they prompt “quite complicated conversations, but that’s where the value comes,” he says.

Of course, high-quality sustainability data doesn’t happen overnight. “It’s OK if it takes a while to make sure you have the right controls in place and get the right people involved,” Peterson says. Indeed, Egan believes the time investment will pay dividends. “What we really primed ourselves for was not just what happened in year one, but also getting everything down and documented so that it’s easier next year,” he says. “If markets gradually migrate toward integrated reporting, we’ll be there already.”

Summary and Worksheet

Key Actions:

  • Review and understand SASB metrics
  • Analyse the delta between existing information and planned disclosures
  • Identify SASB metrics to be disclosed
  • Ensure data reliability
    • Evaluate internal control over SASB metrics
    • Consider disclosure controls and procedures
    • Consider independent, third-party assurance