FSA SASB LEVEL I TEST QUESTIONS
WITH COMPLETE ANSWERS
Characteristics of SASB D&A - Answer- D&A metrics contextualize understanding of a
firm's operations and strategic initiatives
What is SICS? - Answer- Sustainable Industry Classification System create and outline
SASB Sectors and Industries
Classification system to meet the needs of users of financially material sustainability
information to classify and categorize industries. Falls in between granular classification
and repetition, focusing on risks and opportunities and value creation
Why are investors demanding quality sustainability information? - Answer- Financial and
sustainability performance are linked. It gives a better understanding of risk and long
term success. Investment goals vary but include Achieving above market returns,
assessing risk and protecting against losses, an evaluating the predictability of
investment outcomes.
What factors drive demand for quality sustainability information? - Answer- SI, both
qualitative and quantitative, provides insight into financial performance, contributes to
short/med/long-term success by improving management of sustainability-related risks
and opportunities.
Companies may be better equipped to identify and mitigate risks, reduce costs, optimize
efficiencies, and even increase market share and revenue growth through new products
and services. Can improve cost of capital. Demand for SI usually is to drive bottom-line
performance.
Besides companies and investors, what other institutions influence demand for SI? -
Answer- Regulation (state, national, international policy) for recommendations or
requirements of disclosure, non-policy initiatives such as ones by securities exchanges
and other industry organizations
Why was disclosure the basis of regulator reform in the wake of the 1930s stock market
crash? - Answer- Lack of transparency in the market had disastrous implications
(economic decline, great depression, bankruptcy, harming socioeconomic wellbeing).
Disclosure promotes transparency and fosters sound and efficient capital markets.
Disclosure effectively protects investors, positively influences corporate behavior, and
enables informed investor decisions.
What is the relevance of materiality in the context of disclosure? - Answer- Materiality is
what is financially relevant enough to impact investor decisions and therefore, needs to
be disclosed. It was adopted to provide guidance to reporting companies, as lack of
guidance would place undue burden on reporting companies.
,How has materiality historically been interpreted? - Answer- Historically, materiality is
information that impacts financial performance and decision making.
How has the purpose of accounting changed since 1930s and why did financial
reporting move towards standardization? - Answer- Early on, accounting was
specifically accurate record keeping and historical cost accounting (foundation of
accounting). However, companies began to do this on their own way so comparability
was lacking. This pushed a standard definition of accounting-- provides information for
the purpose of making economic decisions, using both historic and forward looking info.
IFRS and GAAP standardize disclosure to make it more consistent, comparable, and
reliable so investors can access and compare companies.
What does the rise of intangible assets mean for corporate disclosure? - Answer-
Increasing proportion of intangible assets (as a % of total S&P market value) means
traditional financial statements do not capture all the truth of performance and value
drivers. Tangible assets alone do not constitute a complete set of info so a gap in info
exists where these assets are not being identified, measures, or managed
What factors contribute to increasing investor interest in non-financial information? -
Answer- Key organizations endorsed financial and non financial reporting in
businesses, more was evidently not captured in financial documents (evidenced by
scandals like Enron). Non-financial reporting discloses relevant information about
financial condition and long term value, as short termism is rejected and long term value
creation is decided in the fiduciary duties of care
What challenges exist in sustainability disclosure that do not necessarily exist in
financial disclosure? - Answer- Young, many audiences are interested (people,
investors, communities) so balancing many needs, many experts and professionals
required, many methods and methodologies that are highly variable are needed and
exist. High variability in scale and scope of data can skew analysis and limit
comparability.
What does "climate-first" disclosure guidance tell us about regulators' approach to
sustainability disclosure? - Answer- Often focusing on climate info (rather than
comprehensive ESG). This can encourage sustainability disclosure while also focusing
and easing companies into it. This is internationally common.
What are the four main characteristics of sustainability disclosure guidance? - Answer-
Interpretive Guidance: interprets or clarifies how sustainability disclosure applies to
existing disclosure guidance (requests it without making it a rule)
Principle-Based Guidance: provides a list of tenants to guide companies
Comply-or-explain Guidance: applies to new and mandatory disclosure requirements,
where companies must comply or explain why they have not
Line-item Disclosure: disclosure using specified metrics and methodologies to produce
specific line items.
, What two considerations must sustainability disclosure guidance balance and how do
standards help achieve that balance. - Answer- Flexibility and Usability.
Standards that are well crated offer long term solution by enabling comparability while
also allowing for slight adjustments and additions. Metrics reported in the same way by
different companies but are tailored to industry context and regulatory environment.
What role do frameworks and standards play in the sustainability disclosure value
chain? - Answer- Organizations produce information--> organizations that use
information. Frameworks and standards connect producers and users. They influence
what and how companies disclose and how to structure data, increase transparency,
and engage in market feedback loops (which they use to shape their frameworks and
standards to consider the needs of both companies and users)
What three types of organizations are most influential ESG data quality, and how are
they different from one another? - Answer- 1. Organizations that issue sustainability
disclosure guidance: promote transparency (internally and externally), free to access,
publically conductor decision making
2. ESG Data Aggregators: compile and present publically-available data, investors use
this to access and analyze data from a variety of companies in one place.
3. Third parties that rate/rank ESG performance of companies: use unique
methodologies to assess the ESG performance of individual companies, sourcing data
from public and private sources.
The last two usually charge a fee and have protected intellectual property. They all exist
along the value chain (data aggregators and rating providers downstream of disclosure
guidance), provide different services, and have unique stakeholder relationships.
What are some of the most common disclosure frameworks and standards? How do
they differ? How are they complementary? - Answer- Frameworks and standards: CDP,
CDSB (climate disclosure standards board), GRI (global reporting initiative), IIRC
(international integrated reporting council), SASB (sustainability accounting standards
board), TCFD (Task force on climate-related financial disclosures)
Differ: scope covered, type of guidance they offer, the industry agnosticism or
specificity, target audience, approach to materiality, governance models employed to
develop
The same: Materiality and scope. Frameworks offer concepts (CDSB, IIRC, TCFD) and
what topics should be covered. Standards (GRI, SASB) are specific, replicable, and
detail guidance for what should be disclosed. Standards make frameworks actionable.
CDP and GRI define materiality in terms of understanding a company's outward impact
on economy, environment, and people. The rest focus on info needed to understand the
impact of sustainability issues on enterprise value.
WITH COMPLETE ANSWERS
Characteristics of SASB D&A - Answer- D&A metrics contextualize understanding of a
firm's operations and strategic initiatives
What is SICS? - Answer- Sustainable Industry Classification System create and outline
SASB Sectors and Industries
Classification system to meet the needs of users of financially material sustainability
information to classify and categorize industries. Falls in between granular classification
and repetition, focusing on risks and opportunities and value creation
Why are investors demanding quality sustainability information? - Answer- Financial and
sustainability performance are linked. It gives a better understanding of risk and long
term success. Investment goals vary but include Achieving above market returns,
assessing risk and protecting against losses, an evaluating the predictability of
investment outcomes.
What factors drive demand for quality sustainability information? - Answer- SI, both
qualitative and quantitative, provides insight into financial performance, contributes to
short/med/long-term success by improving management of sustainability-related risks
and opportunities.
Companies may be better equipped to identify and mitigate risks, reduce costs, optimize
efficiencies, and even increase market share and revenue growth through new products
and services. Can improve cost of capital. Demand for SI usually is to drive bottom-line
performance.
Besides companies and investors, what other institutions influence demand for SI? -
Answer- Regulation (state, national, international policy) for recommendations or
requirements of disclosure, non-policy initiatives such as ones by securities exchanges
and other industry organizations
Why was disclosure the basis of regulator reform in the wake of the 1930s stock market
crash? - Answer- Lack of transparency in the market had disastrous implications
(economic decline, great depression, bankruptcy, harming socioeconomic wellbeing).
Disclosure promotes transparency and fosters sound and efficient capital markets.
Disclosure effectively protects investors, positively influences corporate behavior, and
enables informed investor decisions.
What is the relevance of materiality in the context of disclosure? - Answer- Materiality is
what is financially relevant enough to impact investor decisions and therefore, needs to
be disclosed. It was adopted to provide guidance to reporting companies, as lack of
guidance would place undue burden on reporting companies.
,How has materiality historically been interpreted? - Answer- Historically, materiality is
information that impacts financial performance and decision making.
How has the purpose of accounting changed since 1930s and why did financial
reporting move towards standardization? - Answer- Early on, accounting was
specifically accurate record keeping and historical cost accounting (foundation of
accounting). However, companies began to do this on their own way so comparability
was lacking. This pushed a standard definition of accounting-- provides information for
the purpose of making economic decisions, using both historic and forward looking info.
IFRS and GAAP standardize disclosure to make it more consistent, comparable, and
reliable so investors can access and compare companies.
What does the rise of intangible assets mean for corporate disclosure? - Answer-
Increasing proportion of intangible assets (as a % of total S&P market value) means
traditional financial statements do not capture all the truth of performance and value
drivers. Tangible assets alone do not constitute a complete set of info so a gap in info
exists where these assets are not being identified, measures, or managed
What factors contribute to increasing investor interest in non-financial information? -
Answer- Key organizations endorsed financial and non financial reporting in
businesses, more was evidently not captured in financial documents (evidenced by
scandals like Enron). Non-financial reporting discloses relevant information about
financial condition and long term value, as short termism is rejected and long term value
creation is decided in the fiduciary duties of care
What challenges exist in sustainability disclosure that do not necessarily exist in
financial disclosure? - Answer- Young, many audiences are interested (people,
investors, communities) so balancing many needs, many experts and professionals
required, many methods and methodologies that are highly variable are needed and
exist. High variability in scale and scope of data can skew analysis and limit
comparability.
What does "climate-first" disclosure guidance tell us about regulators' approach to
sustainability disclosure? - Answer- Often focusing on climate info (rather than
comprehensive ESG). This can encourage sustainability disclosure while also focusing
and easing companies into it. This is internationally common.
What are the four main characteristics of sustainability disclosure guidance? - Answer-
Interpretive Guidance: interprets or clarifies how sustainability disclosure applies to
existing disclosure guidance (requests it without making it a rule)
Principle-Based Guidance: provides a list of tenants to guide companies
Comply-or-explain Guidance: applies to new and mandatory disclosure requirements,
where companies must comply or explain why they have not
Line-item Disclosure: disclosure using specified metrics and methodologies to produce
specific line items.
, What two considerations must sustainability disclosure guidance balance and how do
standards help achieve that balance. - Answer- Flexibility and Usability.
Standards that are well crated offer long term solution by enabling comparability while
also allowing for slight adjustments and additions. Metrics reported in the same way by
different companies but are tailored to industry context and regulatory environment.
What role do frameworks and standards play in the sustainability disclosure value
chain? - Answer- Organizations produce information--> organizations that use
information. Frameworks and standards connect producers and users. They influence
what and how companies disclose and how to structure data, increase transparency,
and engage in market feedback loops (which they use to shape their frameworks and
standards to consider the needs of both companies and users)
What three types of organizations are most influential ESG data quality, and how are
they different from one another? - Answer- 1. Organizations that issue sustainability
disclosure guidance: promote transparency (internally and externally), free to access,
publically conductor decision making
2. ESG Data Aggregators: compile and present publically-available data, investors use
this to access and analyze data from a variety of companies in one place.
3. Third parties that rate/rank ESG performance of companies: use unique
methodologies to assess the ESG performance of individual companies, sourcing data
from public and private sources.
The last two usually charge a fee and have protected intellectual property. They all exist
along the value chain (data aggregators and rating providers downstream of disclosure
guidance), provide different services, and have unique stakeholder relationships.
What are some of the most common disclosure frameworks and standards? How do
they differ? How are they complementary? - Answer- Frameworks and standards: CDP,
CDSB (climate disclosure standards board), GRI (global reporting initiative), IIRC
(international integrated reporting council), SASB (sustainability accounting standards
board), TCFD (Task force on climate-related financial disclosures)
Differ: scope covered, type of guidance they offer, the industry agnosticism or
specificity, target audience, approach to materiality, governance models employed to
develop
The same: Materiality and scope. Frameworks offer concepts (CDSB, IIRC, TCFD) and
what topics should be covered. Standards (GRI, SASB) are specific, replicable, and
detail guidance for what should be disclosed. Standards make frameworks actionable.
CDP and GRI define materiality in terms of understanding a company's outward impact
on economy, environment, and people. The rest focus on info needed to understand the
impact of sustainability issues on enterprise value.
