SASB FSA CHECK YOUR
UNDERSTANDING- EXAM QUESTIONS
WITH CORRECT ANSWERS
What does the rise of intangible assets mean for corporate disclosure? - Answer- The
increasing proportion of intangible assets as a percent of total S&P market value
highlights that a very significant amount of information regarding corporate performance
and value drivers is not captured in financial statements. Where investors previously
relied almost exclusively on the valuation of tangible assets, it is now clear that tangible
assets alone do not constitute a complete set of information that can be used to make
informed investment decisions. A "gap" in information exists where intangible assets are
not being clearly and consistently identified, measured, or managed.
What factors contribute to increasing investor interest in non-financial information? -
Answer- In addition to increasing awareness of the "intangibles gap," the value of non-
financial disclosure was endorsed by key organizations in the financial reporting
community, who collectively support the notion that business reporting, both financial
and non-financial, needs to improve to better serve the users of company reports. As
such, non-financial reporting became an imperative component of business reports,
used to disclose information relevant to evaluating a company's future financial
condition and long-term value (including sustainability information) that is not reflected
in financial reports. The growth of responsible investment practices also prompted an
increased focus among investors on other sources of information that lend insight into
company value, including a rejection of extreme short-termism and the recognition that
longterm value generation falls within fiduciary duties of care.
What challenges exist in sustainability disclosure that do not necessarily exist in
financial disclosure? - Answer- Relative to financial disclosure and accounting,
sustainability disclosure is a young discipline. Due to this limited history and differences
in the nature of sustainability data, several challenges manifest exclusively in
sustainability disclosure for reporters and report users. For one, many different
audiences are interested in sustainability information - including investors but also
members of civil society and community members - meaning companies must balance
the needs of different audiences. Where financial accounting relies on the expertise of a
singular, long-established discipline, sustainability accounting relies on the expertise of
professionals across disciplines (such as environmental sciences, human resources,
and others). Challenges also exist related to the ESG data itself. Companies report on a
wide range of ESG topics, often using different metrics and methodologies to measure
performance. High variability in the scale and scope of ESG data across corporate
disclosures can skew analysis and limit its comparability when analyzing companies.
What does "climate first" disclosure guidance tell us about regulators' approach to
sustainability disclosure globally? - Answer- Regulators and other institutions that issue
, new sustainability disclosure guidance often focus their guidance on climate information
(rather than a more-comprehensive focus on environmental, social, and governance
information, which can include climate information). Globally speaking, a focus on non-
mandatory climate disclosure can be a means to overcome political obstacles to
increase quality sustainability disclosure while also providing companies with a focused
topic with which to ease into new reporting expectations. Though there has not been a
visible, globally-coordinated effort to follow this approach, this approach can be
observed across jurisdictions including the Canadian Securities Administration's
Environmental Reporting Guidance, the European Commission's Non-Financial
Reporting Directive, and the US Securities Exchange Commission's 2010 Guidance.
What are the four main characteristics of sustainability disclosure guidance? - Answer-
When looking closely at sustainability disclosure guidance published by regulators,
there are several key characteristics that dictate what companies report and how they
report it. These characteristics directly influence the utility of ESG information to
investors. Interpretive guidance "interprets" or clarifies how sustainability disclosure
applies to existing disclosure guidance. In other words, it requests or mandates
sustainability disclosure without issuing a new rule or policy. Principles-based guidance
provides a list of tenets that companies use to guide their reporting process. For
example, principles-based guidance may require sustainability information to be "clear,"
or that the disclosure include KPIs without stipulating precise requirements for what
clear information looks like or listing specific KPIs to include. Comply-or-explain
guidance often applies to new mandatory disclosure requirements, where companies
must comply with reporting guidance or explain why they have not. Line-item disclosure
guidance refers to the disclosure of sustainability information using specified metrics
and methodologies to produce specific line items. These types of guidance vary in how
flexibly they can be implemented (with interpretive guidance being the most flexible and
line-item disclosure being the least).
What two considerations must sustainability disclosure guidance balance, and how do
disclosure standards help achieve that balance? - Answer- As the spectrum of types of
sustainability disclosure guidance illustrates, there are clear tradeoffs between flexible
disclosure (which increases levels of sustainability disclosure and enables business-
specific nuances in reporting) and disclosure that is useful to investors for its
comparability, reliability, and decision-usefulness. Well-crafted sustainability disclosure
standards may offer the most viable long-term solution to navigating this tradeoff to the
benefit of companies, investors, and markets at large, as they can enable comparability
without prohibiting companies from making useful adjustments or additions to their
disclosure. They enable comparability where metrics are reported in the same way by
different companies, but they can also enable disclosures tailored to a specific industry
context and regulatory environment.
What role do frameworks and standards play in the sustainability disclosure value
chain? - Answer- The sustainability disclosure value chain consists of organizations
that produce information and organizations that use information. Disclosure frameworks
and standards connect these producers and users. The information yielded through
UNDERSTANDING- EXAM QUESTIONS
WITH CORRECT ANSWERS
What does the rise of intangible assets mean for corporate disclosure? - Answer- The
increasing proportion of intangible assets as a percent of total S&P market value
highlights that a very significant amount of information regarding corporate performance
and value drivers is not captured in financial statements. Where investors previously
relied almost exclusively on the valuation of tangible assets, it is now clear that tangible
assets alone do not constitute a complete set of information that can be used to make
informed investment decisions. A "gap" in information exists where intangible assets are
not being clearly and consistently identified, measured, or managed.
What factors contribute to increasing investor interest in non-financial information? -
Answer- In addition to increasing awareness of the "intangibles gap," the value of non-
financial disclosure was endorsed by key organizations in the financial reporting
community, who collectively support the notion that business reporting, both financial
and non-financial, needs to improve to better serve the users of company reports. As
such, non-financial reporting became an imperative component of business reports,
used to disclose information relevant to evaluating a company's future financial
condition and long-term value (including sustainability information) that is not reflected
in financial reports. The growth of responsible investment practices also prompted an
increased focus among investors on other sources of information that lend insight into
company value, including a rejection of extreme short-termism and the recognition that
longterm value generation falls within fiduciary duties of care.
What challenges exist in sustainability disclosure that do not necessarily exist in
financial disclosure? - Answer- Relative to financial disclosure and accounting,
sustainability disclosure is a young discipline. Due to this limited history and differences
in the nature of sustainability data, several challenges manifest exclusively in
sustainability disclosure for reporters and report users. For one, many different
audiences are interested in sustainability information - including investors but also
members of civil society and community members - meaning companies must balance
the needs of different audiences. Where financial accounting relies on the expertise of a
singular, long-established discipline, sustainability accounting relies on the expertise of
professionals across disciplines (such as environmental sciences, human resources,
and others). Challenges also exist related to the ESG data itself. Companies report on a
wide range of ESG topics, often using different metrics and methodologies to measure
performance. High variability in the scale and scope of ESG data across corporate
disclosures can skew analysis and limit its comparability when analyzing companies.
What does "climate first" disclosure guidance tell us about regulators' approach to
sustainability disclosure globally? - Answer- Regulators and other institutions that issue
, new sustainability disclosure guidance often focus their guidance on climate information
(rather than a more-comprehensive focus on environmental, social, and governance
information, which can include climate information). Globally speaking, a focus on non-
mandatory climate disclosure can be a means to overcome political obstacles to
increase quality sustainability disclosure while also providing companies with a focused
topic with which to ease into new reporting expectations. Though there has not been a
visible, globally-coordinated effort to follow this approach, this approach can be
observed across jurisdictions including the Canadian Securities Administration's
Environmental Reporting Guidance, the European Commission's Non-Financial
Reporting Directive, and the US Securities Exchange Commission's 2010 Guidance.
What are the four main characteristics of sustainability disclosure guidance? - Answer-
When looking closely at sustainability disclosure guidance published by regulators,
there are several key characteristics that dictate what companies report and how they
report it. These characteristics directly influence the utility of ESG information to
investors. Interpretive guidance "interprets" or clarifies how sustainability disclosure
applies to existing disclosure guidance. In other words, it requests or mandates
sustainability disclosure without issuing a new rule or policy. Principles-based guidance
provides a list of tenets that companies use to guide their reporting process. For
example, principles-based guidance may require sustainability information to be "clear,"
or that the disclosure include KPIs without stipulating precise requirements for what
clear information looks like or listing specific KPIs to include. Comply-or-explain
guidance often applies to new mandatory disclosure requirements, where companies
must comply with reporting guidance or explain why they have not. Line-item disclosure
guidance refers to the disclosure of sustainability information using specified metrics
and methodologies to produce specific line items. These types of guidance vary in how
flexibly they can be implemented (with interpretive guidance being the most flexible and
line-item disclosure being the least).
What two considerations must sustainability disclosure guidance balance, and how do
disclosure standards help achieve that balance? - Answer- As the spectrum of types of
sustainability disclosure guidance illustrates, there are clear tradeoffs between flexible
disclosure (which increases levels of sustainability disclosure and enables business-
specific nuances in reporting) and disclosure that is useful to investors for its
comparability, reliability, and decision-usefulness. Well-crafted sustainability disclosure
standards may offer the most viable long-term solution to navigating this tradeoff to the
benefit of companies, investors, and markets at large, as they can enable comparability
without prohibiting companies from making useful adjustments or additions to their
disclosure. They enable comparability where metrics are reported in the same way by
different companies, but they can also enable disclosures tailored to a specific industry
context and regulatory environment.
What role do frameworks and standards play in the sustainability disclosure value
chain? - Answer- The sustainability disclosure value chain consists of organizations
that produce information and organizations that use information. Disclosure frameworks
and standards connect these producers and users. The information yielded through
