SUSTAINABILITY ACCOUNTING & SASB
STANDARDS EXAM QUESTIONS AND
ANSWERS
Surfacing issues - Answer- SASB identifies topics in each industry that would be of
interest to a reasonable investor and:
› Pose direct financial risks
› Are or may be regulated in the near future
› Are becoming industry norms and drive competitive best practices
› Are raised by investors and other stakeholders and threaten brands or license to
operate
› Represent opportunities for innovation and growth
Materiality assessment - Answer- Analysts gather ESG topics and assess its impact on
financial fundamentals:
› Revenue Impacts
› Operating Costs
› Asset Value
› Impact on Liabilities and/or
› Financing Costs
SASB's five-factor test to identify evidence of interest - Answer- 1. Financial impacts
and risk (management)
**topic will impact ability to create value
2. Legal, regulatory, and policy drivers (government)
3. Industry norms and competitive drivers (industry peers)
4. Investor/Stakeholder concerns and social trends (stakeholders)
5. Opportunities for innovation (industry leaders)
Each one looks at keywords and is data-driven (and thus more objective than
stakeholder surveys)
,Factor 1: Financial impacts and risk (SASB five-factor test) - Answer- This factor relates
to the likelihood that the issue may have an impact on near-, medium-, or long-term
financial performance of companies in the industry.
These are grouped into three broad categories:
(1) revenues and costs,
(2) assets and liabilities, and
(3) cost of capital
SASB applies the first factor by searching documents that provide the perspective of
companies' management teams, such as 10-K and 20-F forms. These forms include
information that companies have determined to be material.
Factor 2: Legal, regulatory, and policy drivers (SASB five-factor test) - Answer-
Includes existing, emerging, evolving or likely to be enacted, that will require company
to take action to address issue
- SASB searches for documents that provide the perspective of the government or
courts
Factor 3: Industry norms and competitive drivers (SASB five-factor test) - Answer-
Evaluates current and best practices by industry firms in addressing or disclosing
information on the topic
- Searches SRs, CSRRs
Factor 4: Investor/Stakeholder concerns and social trends (SASB five-factor test)s -
Answer- This factor evaluates the importance of the issue to a broad range of
stakeholders (e.g. shareholders, communities, NGOs, public) that might indicate
whether the issue reflects social and consumer trends that are likely to rise to the level
of investor interest when they result in economic implications
E.g. documents searched include shareholder resolutions and general media document.
- They can include the cultural (e.g., the role of diversity in the workforce) as well as the
highly technical (e.g., the safety of nanotechnology)
Stakeholder concerns can be material for investors when they affect revenue (boycotts),
operations (labor strikes), brand reputation (intangible value), license to operate (future
cash flows, assets and liabilities), and/or may result in legal challenges
Factor 5: Opportunities for innovation (SASB five-factor test) - Answer- Evaluates the
potential for competitive advantage from innovation of new products and services, or
from the ability to serve new markets in order to address a particular sustainability issue
How?
* Innovation-related news that provides perspective of corporate leaders in the industry
, * These documents identify innovative solutions that benefit the environment, customers
and/or society
These documents help distinguish innovations that add incremental value from those
that can help solve pressing societal needs or serve untapped customers (e.g., financial
services to unbanked or underbanked customers).
The latter is an innovation opportunity likely to be material to a reasonable investor.
SASB Financial Impact, Category 1 = Revenues & Costs - Answer- REVENUE
› Market size/share
› Pricing power
Drivers and disclosure topics examples:
• Demand for Core Products and Services
(e.g. drug safety)
• Intangible Assets and Long-Term Growth
(e.g. diversity workforce in tech)
COSTS
› Recurring costs = costs of goods sold (COGS); R&D
› Extraordinary expenses
› CAPEX
Drivers and disclosure topics examples:
• Operational Efficiency/Cost Structure
(e.g. energy-efficient chemicals production)
** General example: The sustainability performance of competing products and services
can impact revenues through market share and pricing power. Sustainability issues can
change availability and pricing of raw materials and inputs, impacting expenses through
the supply chain via cost of goods sold.
SASB Financial Impact, Category 2 = Assets & Liabilities - Answer- › Tangible assets
(e.g. plant, property and equipment (PP&E)
› Intangible assets (e.g. brand value)
› Contingent liabilities and provisions
› Pension and other liabilities
Drivers and disclosure topics examples:
• Valuation of Core Assets and Liabilities
(e.g. stranded coal assets)
** General example: Climate change can impact assets like PP&E and brand value.
Realized or contingent liabilities can arise from sustainability issues such as severe
weather-related events or regulatory action related to climate change
STANDARDS EXAM QUESTIONS AND
ANSWERS
Surfacing issues - Answer- SASB identifies topics in each industry that would be of
interest to a reasonable investor and:
› Pose direct financial risks
› Are or may be regulated in the near future
› Are becoming industry norms and drive competitive best practices
› Are raised by investors and other stakeholders and threaten brands or license to
operate
› Represent opportunities for innovation and growth
Materiality assessment - Answer- Analysts gather ESG topics and assess its impact on
financial fundamentals:
› Revenue Impacts
› Operating Costs
› Asset Value
› Impact on Liabilities and/or
› Financing Costs
SASB's five-factor test to identify evidence of interest - Answer- 1. Financial impacts
and risk (management)
**topic will impact ability to create value
2. Legal, regulatory, and policy drivers (government)
3. Industry norms and competitive drivers (industry peers)
4. Investor/Stakeholder concerns and social trends (stakeholders)
5. Opportunities for innovation (industry leaders)
Each one looks at keywords and is data-driven (and thus more objective than
stakeholder surveys)
,Factor 1: Financial impacts and risk (SASB five-factor test) - Answer- This factor relates
to the likelihood that the issue may have an impact on near-, medium-, or long-term
financial performance of companies in the industry.
These are grouped into three broad categories:
(1) revenues and costs,
(2) assets and liabilities, and
(3) cost of capital
SASB applies the first factor by searching documents that provide the perspective of
companies' management teams, such as 10-K and 20-F forms. These forms include
information that companies have determined to be material.
Factor 2: Legal, regulatory, and policy drivers (SASB five-factor test) - Answer-
Includes existing, emerging, evolving or likely to be enacted, that will require company
to take action to address issue
- SASB searches for documents that provide the perspective of the government or
courts
Factor 3: Industry norms and competitive drivers (SASB five-factor test) - Answer-
Evaluates current and best practices by industry firms in addressing or disclosing
information on the topic
- Searches SRs, CSRRs
Factor 4: Investor/Stakeholder concerns and social trends (SASB five-factor test)s -
Answer- This factor evaluates the importance of the issue to a broad range of
stakeholders (e.g. shareholders, communities, NGOs, public) that might indicate
whether the issue reflects social and consumer trends that are likely to rise to the level
of investor interest when they result in economic implications
E.g. documents searched include shareholder resolutions and general media document.
- They can include the cultural (e.g., the role of diversity in the workforce) as well as the
highly technical (e.g., the safety of nanotechnology)
Stakeholder concerns can be material for investors when they affect revenue (boycotts),
operations (labor strikes), brand reputation (intangible value), license to operate (future
cash flows, assets and liabilities), and/or may result in legal challenges
Factor 5: Opportunities for innovation (SASB five-factor test) - Answer- Evaluates the
potential for competitive advantage from innovation of new products and services, or
from the ability to serve new markets in order to address a particular sustainability issue
How?
* Innovation-related news that provides perspective of corporate leaders in the industry
, * These documents identify innovative solutions that benefit the environment, customers
and/or society
These documents help distinguish innovations that add incremental value from those
that can help solve pressing societal needs or serve untapped customers (e.g., financial
services to unbanked or underbanked customers).
The latter is an innovation opportunity likely to be material to a reasonable investor.
SASB Financial Impact, Category 1 = Revenues & Costs - Answer- REVENUE
› Market size/share
› Pricing power
Drivers and disclosure topics examples:
• Demand for Core Products and Services
(e.g. drug safety)
• Intangible Assets and Long-Term Growth
(e.g. diversity workforce in tech)
COSTS
› Recurring costs = costs of goods sold (COGS); R&D
› Extraordinary expenses
› CAPEX
Drivers and disclosure topics examples:
• Operational Efficiency/Cost Structure
(e.g. energy-efficient chemicals production)
** General example: The sustainability performance of competing products and services
can impact revenues through market share and pricing power. Sustainability issues can
change availability and pricing of raw materials and inputs, impacting expenses through
the supply chain via cost of goods sold.
SASB Financial Impact, Category 2 = Assets & Liabilities - Answer- › Tangible assets
(e.g. plant, property and equipment (PP&E)
› Intangible assets (e.g. brand value)
› Contingent liabilities and provisions
› Pension and other liabilities
Drivers and disclosure topics examples:
• Valuation of Core Assets and Liabilities
(e.g. stranded coal assets)
** General example: Climate change can impact assets like PP&E and brand value.
Realized or contingent liabilities can arise from sustainability issues such as severe
weather-related events or regulatory action related to climate change
