Establishing a Foundation
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.
Implementation Primer
Overview • Establishing a Foundation • Choosing the Right Tools for the Job • Deciding Where to Disclose • Understanding SASB Standards • Assessing Your Readiness • Developing Your Disclosures • Enabling Continuous Improvement
Developing a culture that links sustainability to business performance and building relevant organisational capacity are important early steps in effectively integrating financially material sustainability factors into key business processes—and, therefore, in successfully implementing SASB Standards.
Establishing a strong foundation can greatly enhance a company’s ability to robustly implement SASB Standards, but it is equally important to strive for “progress over perfection.” Each company’s reporting journey will be unique. Companies can find significant value in simply getting started, “learning by doing,” and not letting the perfect be the enemy of the good.
For example, Gap Inc. took this approach in its 2017 Global Sustainability Report. The company noted, for instance, that its chemicals management program had made significant strides, but hadn’t yet reached its full potential. That didn’t stop the company from reporting on the issue, because transparency would provide an important baseline for demonstrating the future progress Gap Inc. intends to make—both in terms of its performance and its reporting. “In the past, we would have probably waited a few years until we had a perfect program,” said Global Sustainability Director Victor Wong. But, the company believed there was value in being “more open and transparent about where we are in the process,” Wong said.
Learning by doing can also enable companies to improve their reporting practices over time. For example, NRG Energy refined its strategy for collecting air quality data over time to move away from inefficient, manual data gathering. Recognising that implementation of sustainability disclosures (and related performance improvements) is iterative, NRG worked through its initial reporting hurdles, in part by engaging with SASB’s research analysts and by joining the SASB Alliance, which allowed it to leverage existing knowledge and resources.
As demonstrated by these examples and others, the best way for a company to scale the learning curve and make progress toward meeting its communications objectives is to get started. Each company is unique and should identify its own foundational elements to support effective reporting, for which these recommendations may serve as a helpful reference.
Setting the Tone at the Top
Implementation of SASB Standards may be more likely to succeed when a company views use of the standards as being well-aligned with its strategic objectives. Company leadership can facilitate such an approach by signaling its support for embedding the consideration of financially material sustainability factors into the company’s strategy, business model, and corporate culture. This includes embedding consideration of financially material sustainability factors into governance, strategy, risk management, and performance management processes.
Strong leadership buy-in should ensure that the necessary resources are made available to enable robust SASB implementation. In a world of limited resources, clear and consistent leadership support enables the effective execution of the steps in this guidance. The following questions and considerations may help a company assess—and, if necessary, establish—buy-in among the board of directors and executive leadership team.
Questions for Boards of Directors
- Is the company’s approach to sustainability well-aligned with its business strategy?
- Have the board and management identified the sustainability issues that are most relevant to the company’s long-term financial performance?
- Is the risk committee satisfied that the company’s approach to risk management incorporates business-relevant sustainability matters?
- Is the nominating committee satisfied that the board’s competencies include sufficient fluency in the sustainability issues most likely to impact the company’s financial condition or operating performance?
- Has the company engaged with its investors to better understand their sustainability-related areas of concern and information needs?
- Does the board or its key committees regularly review KPIs tracking the company’s performance on financially material sustainability issues? Are these KPI’s integrated into executive compensation plans?
- Has the audit committee reviewed the effectiveness of the company’s internal control over sustainability information gathering and reporting to ensure it is comfortable with the quality and reliability of the data?
Questions for Executive Leadership Team
- Is the company’s approach to sustainability well-aligned with its business strategy?
- Have the board and management identified the sustainability issues that are most relevant to the company’s long-term financial performance?
- Has the company identified key audiences for sustainability information, and has it developed a communication strategy to meet the needs of those audiences?
- Has the company allocated sufficient resources to ensure its sustainability reporting objectives are met?
- Who owns sustainability disclosure at the company? Is that person’s work integrated with other relevant business functions?
- How does the company currently disclose financially material sustainability information to investors?
- Are business-critical sustainability matters reflected in the company’s risk inventory and sufficiently assessed by the company’s risk management team? Are they considered in setting the company’s risk appetite?
- Does senior management regularly review KPIs tracking the company’s performance on financially material sustainability issues?
- Has the company conducted a thorough review of sustainability disclosure among peer companies?
- Has the company established appropriate controls and procedures to ensure financially material sustainability information is effectively captured, summarized, and reported?
Company leaders who clearly communicate the strategic importance of key sustainability factors and demonstrate their own commitment to effectively managing those factors can have a transformative effect on a company’s culture.
At many companies, a key early step to implementing SASB standards is ensuring all internal stakeholders are on board and share a common understanding of the organisation’s communications objectives. To establish this foundation, reporting professionals often must engage with different functions throughout the company to build knowledge, make the business case, and gain support. This effort may involve getting buy-in from leadership as well as from subject matter experts throughout the organisation.
Leadership buy-in is table stakes according to Laurel Peacock, Sustainability Director at NRG Energy. When company leaders signal that investor-focused sustainability disclosure is a priority, their commitment cascades down throughout the organisation. As Sophia Mendelsohn, Director of Sustainability and ESG at JetBlue, has said, “Knowing there is buy-in from the top creates a sense of security in moving forward.” For example, Kristin Peterson, Director of Corporate Compliance at Kinder Morgan, says board support made it easier to collect consistent, comparable, reliable data from across her company. “It is easier to drive change or additional reporting requirements company-wide with board support,” she says.
Making an effort to overcome language barriers can also help. Peacock says it’s important to “make the business proposition clear.” To do so, she “learned to speak the language of whatever unit I was talking to, whether it was our operations or our environmental team or our B2B or B2C groups on the retail side.” By doing so, she was able to build a mutual understanding that “these issues represent real business risks and opportunities.”
Because SASB topics and metrics address key business considerations, the relevant functions within the organisation often find they’re already managing the issue in some way—or can readily do so. “Our subject matter experts appreciate that SASB is more focused than other standards out there,” Peterson says. Indeed, as Peacock points out, “To the extent that you can make this an existing part of the subject matter expert’s job rather than an add-on,” the easier it will be to establish buy-in.
It can also be helpful to provide stakeholders with important context around new requests for sustainability information. For instance, Peacock says, “If I bring them tangible examples of how the information is being used by investors or data aggregators, it’s much easier to get buy-in.” Additionally, she notes, “When I can show them the CEO cares about this issue and how sustainability is a foundation for NRG’s business strategy, they appreciate that.” Without a sense of the bigger picture, “it’s easy for these things to get lost in the trenches,” she says.
Most of all, getting buy-in is a function of effective cross-functional relationships. Daniel Egan, Senior Vice President of Energy & Sustainability at Vornado Realty Trust, recommends that reporting professionals “start building relationships with the right people internally” sooner rather than later. Identifying subject matter experts and leadership-level advocates for each SASB topic and building strong working relationships with those key parties can not only enhance organisational buy-in but also ensure the implementation process goes as smoothly as possible. “You can’t do the job without that,” says Peacock.
Building Capacity Across Functions
Because SASB standards span environmental, social, and governance-related issues that are tied to financial performance, effective implementation is likely to call for the involvement of a range of company functions. Before developing its disclosures, a company should identify the functional expertise needed, and ensure it has management buy-in to make these resources available. In such a context, SASB standards can help companies transcend departmental silos, facilitating collaborative, integrated management of the sustainability factors most likely to affect a company’s long-term value.
Critical early steps are to identify the person responsible for leading the SASB implementation effort, and to assemble and educate a cross-functional team made up of individuals that possess the knowledge and skills necessary to facilitate high-quality disclosure. Depending on a company’s operating and reporting context, the needed knowledge—and therefore the roles making up the cross-functional team—will vary. As such, companies may wish to map the knowledge bases and skill sets needed to departments and/or specific roles within the organisation. When assembling the team, companies may wish to consider the following departments, among others:
- Finance and accounting
- Sustainability
- Environmental, health, and safety (“EH&S”)
- General counsel
- Risk management
- Internal audit
- Internal control
- Strategy
- Operations
- Information technology
- Compliance
- Human resources
- Investor relations
- Corporate secretary
- Relevant functional areas (e.g., sales/marketing, supply chain, manufacturing)
A cross-functional team provides diverse perspectives in assessing sustainability factors for their financial impacts, their ability to be effectively measured, managed, and reported, and—where appropriate—how best to embed them in the DNA of the organisation. Although we recommend that a company establish an “owner” for each SASB topic, the cross-functional team can provide invaluable assistance in implementing the necessary processes, systems, and controls, and monitoring their effectiveness. Companies may be able to leverage existing cross-functional teams—e.g., those that may exist for internal control, disclosure processes, or business strategy.
SASB Resources: Educating Key Internal Stakeholders
SASB has developed a variety of general and audience-specific resources that may prove useful in “socializing” key concepts and tools within a company
- “How Can SASB Standards Help Boards of Directors?” offers an overview of SASB standards for a company’s governing body.
- “How Can SASB Standards Help Investor Relations?” provides high-level tips for facilitating effective ESG communication with shareholders.
- Corporate professionals engaged in their company’s shareholder engagement program can use the SASB Engagement Guide to ensure they’re prepared to accurately and meaningfully respond to potential inquiries.
- Members of finance, accounting, internal audit, information technology, and other functions may have questions about data quality and reliability that are addressed by Leveraging the COSO Internal Control – Integrated Framework to Improve Confidence in Sustainability Data.
- The TCFD Implementation Guide provides practical “how-to” guidance for companies to use SASB standards and the CDSB Framework to take the TCFD recommendations from principles to practice.
- The TCFD Good Practice Handbook includes real-world examples of TCFD-aligned disclosure and key takeaways to help reporting companies communicate more effectively with investors on climate risk.
Summary and Worksheet
Key Actions:
- Secure buy-in from board and executive leadership
- Aim for progress over perfection
- Identify the person who will lead the SASB implementation effort
- Identify the skills and knowledge needed to produce high-quality disclosure
- Form a cross-functional team, or leverage an existing team
- Review available SASB resources