SUSTAINABILITY ACCOUNTING & SASB
STANDARDS EXAM QUESTIONS AND
ANSWERS
SASB's Conceptual Framework defines sustainability accounting as - Answer- - The
measurement, management, and reporting of corporate activities that maintain or
enhance the ability of the company to create value over the long term.
- This includes activities that involve human, social, and environmental capital, but also
the impacts of governance, leadership, and innovation on value creation.
Although sustainability accounting metrics may not be expressed in monetary units, the
performance they measure can have a financial impact.
Case for sustainability accounting - Answer- 1 - Provide insight on where resources are
being wasted and how a company can further improve insight into cost drivers and
create more robust activity-based costing analyses (fit clearly in balance sheet because
tied to specific value impacts/ performance)
2 - Nonfinancial measures can also help managerial accountants align a company's
activities with its key strategic objectives and provide support for the identification or
exploration of growth opportunities
Challenges with current sustainability disclosures - Answer- • Disclosure overload
(many of which neither material or decision-useful) (e.g. more than 500 sustainability
issues are tracked by dozens of entities, relying on 2,000 indicators)
• Topics are often NOT disclosed using metrics that can establish a level of
performance with respect to peers (instead buried underneath boilerplate language that
is not decision-useful)
• Timing of reporting do not coincide with Form 10-K disclosures so not helpful for
investor decision-making
• Positive bias of reports (greenwashing)
• Cost burden for companies themselves to track all indicators + overload of surveys
and questionnaires sent from investors, data aggregators, indices, rating agencies, etc
(e.g. at GE, responding to over 650 ESG questionnaires involved more than 75
employees and took several months)
• Because of all this surveys, etc., some material information never ends up getting
disseminated to general public which is a violation of Regulation FD (which prohibits
,companies from selectively disclosing material nonpublic information to analysts, inst'l
investors, etc)
• Securities law and proprietary definitions of materiality are different (investor vs all
stakeholders)
--> "SEC registrants who publish a sustainability report using a proprietary definition of
"materiality" - such as the definitions offered by GRI, IIRC, and others - may be exposed
to legal liability [in Rule 10b-5 lawsuits]."
• [Related to point above] Discrepancies between Form 10-K and sustainability report
• Fragmented and diverse group of sustainability ratings makes it difficult for investors to
rely on them (and the information they rely on may or may not be material)
Benefits of Improved Sustainability Disclosure - Companies - Answer- • Opportunity for
competitive advantage
• Improved access to capital
• Enhanced reputation
• Increased efficiency and waste reduction
• Improved employee loyalty
• Lower cost of capital
• Expanded revenue growth
• Improved risk management
Benefits of Improved Sustainability Disclosure - Investors - Answer- • Increased
transparency
• More effective allocation of capital
• Improved market stability
• Greater market liquidity
Benefits of standards - Answer- (1) Standards contribute to improved economic
efficiency by reducing variety and improving compatibility, which fosters markets for
materials, products, and information.
(2) Standards also reduce information asymmetry between buyers and producers—a
pound is a pound is a pound—which helps limit market failures.
, (3) Standards tend to promote trade by reducing barriers to access new markets. E.g.: a
gram in France is the same as a gram in Germany, so you don't have to reconfigure
your supply chain or pricing structure.
SASB standards - summary - Answer- Cover 79 industries in 11 sectors
Designed to:
1) - Focus on the U.S. capital markets;
2) - Surface sustainability information likely to be material (per industry, although
company's ultimate responsibility to determine what to include in SEC filings);
3) - Yield decision-useful data;
4) - Be cost-effective for corporate issuers (focuses on minimum set of disclosure topics
likely to be material for a given industry -- median of five topics and 13 metrics per
industry, 78% of which are quantitative);
5) - Identify industry-specific disclosure topics.
-------------
** They're intended to meet the needs of the reasonable investor without creating an
undue burden on issuers.
** Without evidence of financial impact, a sustainability factor is not included as a SASB
disclosure topic.
** Distinguishes between acute and chronic financial impacts; and between actual and
potential impacts
Often, SASB topics can lead to more than one type of financial impact.
Example -> hazardous waste can potentially impact costs, liabilities, and cost of capital.
Hazardous waste has a direct and ongoing impact on costs for storage, treatment, and
disposal. It can also be associated with other costs, liabilities, and/or highest cost of
capital when unusually high volumes of hazardous waste increase the risk of a leak or
spill, which may lead to fines, contingent liabilities, and an ultimately higher cost of
capital.
SASB & US Capital Markets - Answer- • Compatible with U.S. securities laws (intended
for use in filings made with the SEC, although companies from all over the world are
subject to US disclosure requirements)
STANDARDS EXAM QUESTIONS AND
ANSWERS
SASB's Conceptual Framework defines sustainability accounting as - Answer- - The
measurement, management, and reporting of corporate activities that maintain or
enhance the ability of the company to create value over the long term.
- This includes activities that involve human, social, and environmental capital, but also
the impacts of governance, leadership, and innovation on value creation.
Although sustainability accounting metrics may not be expressed in monetary units, the
performance they measure can have a financial impact.
Case for sustainability accounting - Answer- 1 - Provide insight on where resources are
being wasted and how a company can further improve insight into cost drivers and
create more robust activity-based costing analyses (fit clearly in balance sheet because
tied to specific value impacts/ performance)
2 - Nonfinancial measures can also help managerial accountants align a company's
activities with its key strategic objectives and provide support for the identification or
exploration of growth opportunities
Challenges with current sustainability disclosures - Answer- • Disclosure overload
(many of which neither material or decision-useful) (e.g. more than 500 sustainability
issues are tracked by dozens of entities, relying on 2,000 indicators)
• Topics are often NOT disclosed using metrics that can establish a level of
performance with respect to peers (instead buried underneath boilerplate language that
is not decision-useful)
• Timing of reporting do not coincide with Form 10-K disclosures so not helpful for
investor decision-making
• Positive bias of reports (greenwashing)
• Cost burden for companies themselves to track all indicators + overload of surveys
and questionnaires sent from investors, data aggregators, indices, rating agencies, etc
(e.g. at GE, responding to over 650 ESG questionnaires involved more than 75
employees and took several months)
• Because of all this surveys, etc., some material information never ends up getting
disseminated to general public which is a violation of Regulation FD (which prohibits
,companies from selectively disclosing material nonpublic information to analysts, inst'l
investors, etc)
• Securities law and proprietary definitions of materiality are different (investor vs all
stakeholders)
--> "SEC registrants who publish a sustainability report using a proprietary definition of
"materiality" - such as the definitions offered by GRI, IIRC, and others - may be exposed
to legal liability [in Rule 10b-5 lawsuits]."
• [Related to point above] Discrepancies between Form 10-K and sustainability report
• Fragmented and diverse group of sustainability ratings makes it difficult for investors to
rely on them (and the information they rely on may or may not be material)
Benefits of Improved Sustainability Disclosure - Companies - Answer- • Opportunity for
competitive advantage
• Improved access to capital
• Enhanced reputation
• Increased efficiency and waste reduction
• Improved employee loyalty
• Lower cost of capital
• Expanded revenue growth
• Improved risk management
Benefits of Improved Sustainability Disclosure - Investors - Answer- • Increased
transparency
• More effective allocation of capital
• Improved market stability
• Greater market liquidity
Benefits of standards - Answer- (1) Standards contribute to improved economic
efficiency by reducing variety and improving compatibility, which fosters markets for
materials, products, and information.
(2) Standards also reduce information asymmetry between buyers and producers—a
pound is a pound is a pound—which helps limit market failures.
, (3) Standards tend to promote trade by reducing barriers to access new markets. E.g.: a
gram in France is the same as a gram in Germany, so you don't have to reconfigure
your supply chain or pricing structure.
SASB standards - summary - Answer- Cover 79 industries in 11 sectors
Designed to:
1) - Focus on the U.S. capital markets;
2) - Surface sustainability information likely to be material (per industry, although
company's ultimate responsibility to determine what to include in SEC filings);
3) - Yield decision-useful data;
4) - Be cost-effective for corporate issuers (focuses on minimum set of disclosure topics
likely to be material for a given industry -- median of five topics and 13 metrics per
industry, 78% of which are quantitative);
5) - Identify industry-specific disclosure topics.
-------------
** They're intended to meet the needs of the reasonable investor without creating an
undue burden on issuers.
** Without evidence of financial impact, a sustainability factor is not included as a SASB
disclosure topic.
** Distinguishes between acute and chronic financial impacts; and between actual and
potential impacts
Often, SASB topics can lead to more than one type of financial impact.
Example -> hazardous waste can potentially impact costs, liabilities, and cost of capital.
Hazardous waste has a direct and ongoing impact on costs for storage, treatment, and
disposal. It can also be associated with other costs, liabilities, and/or highest cost of
capital when unusually high volumes of hazardous waste increase the risk of a leak or
spill, which may lead to fines, contingent liabilities, and an ultimately higher cost of
capital.
SASB & US Capital Markets - Answer- • Compatible with U.S. securities laws (intended
for use in filings made with the SEC, although companies from all over the world are
subject to US disclosure requirements)
