SASB LEVEL II: TERMS EXAM
QUESTIONS WITH COMPLETE
ANSWERS
Categories of financial impact associated with SASB sustainability issues - Answer- 1)
Revenue and expenses (ex- demand; market share and long term growth; operational
efficiency and cost structure)
2)Assets and liabilities (ex - tangible and intangible assets and liabilities)
3)Cost of capital (Risk) - often impact other channels as well (ex - governance, volatility,
and risk factors)
opportunity metric vs. risk metric - Answer- -higher metric values indicate improved
economic performance, such as revenues, product sales, or employee engagement? =
opportunity
-higher metric values indicate threats to economic performance, such as number of
recalls, employee turnover, or total energy consumed = risk
Sustainability impacts can vary considerably in terms of - Answer- likelihood, timing,
and magnitude
-operating efficiency will almost always be associated with actual impacts
-SASB metrics related to everyday operations almost always capture performance on
lower-magnitude impacts
Acute vs. progressive impacts - Answer- -Acute= one-time events (typically high
magnitude and low likelihood; short term and medium/long term impact)
-Progressive=occur gradually over time; likely high likelihood, medium/long-term impact,
and low to high magnitude)
ESG impact on cash flows - Answer- -revenues
-expenses
-assets
-liabilities
DCF Key Inputs - Answer- 1. Components of cash flows—both present value and
projections—during a
forecast period (e.g., five years):
a. Revenues (an estimate of cash received)
b. Expenses (an estimate of cash expended)
c. Change in working capital (the difference between assets and liabilities)
d. Taxes
2. Calculation of the discount rate (the weighted average cost of capital [WACC])
3. Prediction of the long-term growth rate to estimate the terminal value
discounted to its present value
, a. Typically based on industry or company cash flow growth
b. Assumes the cash flows will continue in perpetuity
Note that DCF focuses on future cash flows over a multi-year period.
SASB Standards adjust the following valuation model inputs - Answer- cash flows,
discount rate/cost of capital, long-term growth rate
SASB Standards that impact cash flow - Answer- = clear links to revenues, costs,
assets, and/or liabilities
Revenues= improved profits, expanding market share or developing new products,
increased productivity
-assets like land rights can be impaired by community resistance to projects
liabilities = future financial obligations and legal risks (fines, legal penalties metrics)
Intangibles - Answer- -intangible assets= brand/reputation, customer relationships,
intellectual property etc.
-changes in revenue, industry trends, and how a company manages brand may help
understanding of the value of intangibles
-off-balance sheet intangibles = difference between the book value and market value of
a firm
-SASB standards typically account for off-balance-sheet intangibles with a qualitative
metric
Rule of thumbs for impacts related to cash flows - Answer- 1) Disclosures that provide
operational performance data that has clear/direct impacts on expenses and/or
revenues
-examples: energy consumption metrics, revenue generated from products with
favorable attributes, waste reduction metrics
2) Disclosures that provide operational performance data that has clear/direct impacts
on assets and liabilities
-examples: impairment related, litigation and regulatory related
Metrics related to cost of capital - Answer- -sustainability factors that can impact
exposure to risk
-also, if a company does not disclose material sustainability information or disclosure
unreliable info = risky
=adjust discount rate
Cost of equity and SASB - Answer- -depends on the volatility of a business
-if stable = adjust forward-looking asset beta down = lower cost of equity = lower
volatility
Measures of Variability; Spread - Answer- analyze how dispersed a data set it
(Standard Deviation, Mean absolute deviation (MAD); Minimum and maximum
variables). Help users determine whether or not to normalize the data and improve
analysis of widely dispersed data with effective normalization
QUESTIONS WITH COMPLETE
ANSWERS
Categories of financial impact associated with SASB sustainability issues - Answer- 1)
Revenue and expenses (ex- demand; market share and long term growth; operational
efficiency and cost structure)
2)Assets and liabilities (ex - tangible and intangible assets and liabilities)
3)Cost of capital (Risk) - often impact other channels as well (ex - governance, volatility,
and risk factors)
opportunity metric vs. risk metric - Answer- -higher metric values indicate improved
economic performance, such as revenues, product sales, or employee engagement? =
opportunity
-higher metric values indicate threats to economic performance, such as number of
recalls, employee turnover, or total energy consumed = risk
Sustainability impacts can vary considerably in terms of - Answer- likelihood, timing,
and magnitude
-operating efficiency will almost always be associated with actual impacts
-SASB metrics related to everyday operations almost always capture performance on
lower-magnitude impacts
Acute vs. progressive impacts - Answer- -Acute= one-time events (typically high
magnitude and low likelihood; short term and medium/long term impact)
-Progressive=occur gradually over time; likely high likelihood, medium/long-term impact,
and low to high magnitude)
ESG impact on cash flows - Answer- -revenues
-expenses
-assets
-liabilities
DCF Key Inputs - Answer- 1. Components of cash flows—both present value and
projections—during a
forecast period (e.g., five years):
a. Revenues (an estimate of cash received)
b. Expenses (an estimate of cash expended)
c. Change in working capital (the difference between assets and liabilities)
d. Taxes
2. Calculation of the discount rate (the weighted average cost of capital [WACC])
3. Prediction of the long-term growth rate to estimate the terminal value
discounted to its present value
, a. Typically based on industry or company cash flow growth
b. Assumes the cash flows will continue in perpetuity
Note that DCF focuses on future cash flows over a multi-year period.
SASB Standards adjust the following valuation model inputs - Answer- cash flows,
discount rate/cost of capital, long-term growth rate
SASB Standards that impact cash flow - Answer- = clear links to revenues, costs,
assets, and/or liabilities
Revenues= improved profits, expanding market share or developing new products,
increased productivity
-assets like land rights can be impaired by community resistance to projects
liabilities = future financial obligations and legal risks (fines, legal penalties metrics)
Intangibles - Answer- -intangible assets= brand/reputation, customer relationships,
intellectual property etc.
-changes in revenue, industry trends, and how a company manages brand may help
understanding of the value of intangibles
-off-balance sheet intangibles = difference between the book value and market value of
a firm
-SASB standards typically account for off-balance-sheet intangibles with a qualitative
metric
Rule of thumbs for impacts related to cash flows - Answer- 1) Disclosures that provide
operational performance data that has clear/direct impacts on expenses and/or
revenues
-examples: energy consumption metrics, revenue generated from products with
favorable attributes, waste reduction metrics
2) Disclosures that provide operational performance data that has clear/direct impacts
on assets and liabilities
-examples: impairment related, litigation and regulatory related
Metrics related to cost of capital - Answer- -sustainability factors that can impact
exposure to risk
-also, if a company does not disclose material sustainability information or disclosure
unreliable info = risky
=adjust discount rate
Cost of equity and SASB - Answer- -depends on the volatility of a business
-if stable = adjust forward-looking asset beta down = lower cost of equity = lower
volatility
Measures of Variability; Spread - Answer- analyze how dispersed a data set it
(Standard Deviation, Mean absolute deviation (MAD); Minimum and maximum
variables). Help users determine whether or not to normalize the data and improve
analysis of widely dispersed data with effective normalization
