Board aims to put natural and financial capital on the same footing in the US

It’s time company reporting on environmental, social and governance issues is given the same rigour as financial reporting, Jean Rogers, chief executive of the Sustainability Accounting Standards Board, tells Mike Scott

For 40 years, financial reporting standards in the US have been set by the Financial Accounting Standards Board (FASB), creating robust, trustworthy markets and providing useful information to investors.

Now a new organisation hopes to takes its place alongside FASB and move company reporting into a new era.

The Sustainability Accounting Standards Board (SASB) aims to set new standards for company reporting on material sustainability issues, according to chief executive Jean Rogers. A lot has changed in the four decades since the establishment of FASB, she says.

“There is an entire class of information that is increasingly relevant to businesses and investors, relating to environmental, social and governance issues, but that information is not flowing freely,” she adds. “We cannot any longer have companies that maximise one form of capital (financial) at the expense of other forms of capital – value creation cannot be sustainable if the underlying natural capital is being depleted.”

Companies in the US are far less focused on the risks and opportunities created by sustainability issues than those in the rest of the world and SASB aims to change that. Its first task will be to create a “materiality map” for 102 sectors of the economy that will identify the relative importance of a range of sustainability issues to different industries.

“This work will provide an evidence base that narrows our field of vision to focus only on the most indispensable issues so that no one can argue that these factors should not be reported on,” Rogers says.

Having identified the issues, the board will work out how to measure them. It wants to create a minimum set of standards that every company should be reporting on, industry-based key performance indicators suitable for disclosure in standard filings such as the Form 10-K, the mandatory disclosure form that listed companies must file with the Securities & Exchange Commission.

“Our hope is that every company in a particular industry will know what to disclose so that every analyst has access to the information that they need to benchmark companies,” she continues.

Different industries will disclose in different, industry-specific ways, even on the same issues, she suggests.

Climate change, for example, is a crucial factor for industries ranging from power utilities to airlines, to the insurance industry. But while airlines may be asked to provide information, such as the age of their fleet or their fuel hedging practices, utilities will disclose the proportion of renewable power they generate and their carbon footprint, while insurers may be asked to focus on the vulnerability of insured assets and the impact of catastrophic events.

“We are focusing on the industry level – if you go down to the individual company, there are too many unique circumstances that are not comparable and if you take a view of the whole economy then you lose the relevance,” Rogers says.

Current information on ESG issues is not standardised, much of it is immaterial and it can be expensive to gather it from a wide range of sources.

“SASB has a simple goal, but it is far-reaching. The efficient functioning of capital markets is based on the idea that all the relevant information is available to all participants – but at the moment, there is relevant information that is not freely available in a useful form.

“Once it is, it will drive all sorts of different investment strategies. We want to create a level playing field.”