Corporations that have struggled with how to account for their sustainability efforts in their financial reporting will soon have more guidance. The Sustainability Accounting Standards Board (SASB) plans to develop a corporate pilot program to help companies disclose material environmental, social and governance issues to investors.
SASB, a nonprofit standards setter established in 2011, is initially looking for 10 companies in 10 industry sectors to sign up for the program, which will be launched in the first quarter of 2014. The pilot programs will be run the next three years, beginning with the health care and financial services industries.
As Dr. Jean Rogers, SASB founder and executive director, explains, some of the issues and activities to be reported “are quite sensitive.” That’s why SASB came up with a “tactical approach” for firms to not only report this information but also say it in language appropriate for financial reporting. Companies in the pilot program and those just using it as a guide, she says, will “learn from each other how to approach this type of information or disclosure.”
“CFOs want to do the right thing. They find the guidance and level of disclosure very helpful in complying with existing law,” adds Rogers. The Securities and Exchange Commission requires that material, non-financial information be disclosed in 10-Ks but it leaves open to interpretation what kinds of information should be included and at what level of detail.
“We’re not trying to put a bunch of new stuff in the 10-K. We’re trying to put it there in a way that an investor can pull it out and benchmark. Right now the information is disclosed in varying degrees and it’s not useful for investors,” Rogers explains.
SASB plans to facilitate dialogue between company executives and SASB staff by creating an online forum where CFOs can share their ideas.
The pilot program complements the launch of SASB’s industry-specific sustainable accounting standards in July. Those standards address reporting designed to be included in the management, discussion and analysis (MD&A) section within firms’ 10-Ks. SASB began with standards for the health-care industry, which will be followed by standards for the financial services, technology, communications and non-renewable energy sectors, as well as the transportation industry.
Corporations as well as equity analysts and investors have warmed to the idea of having industry sustainability reporting standards — or at least it has piqued their curiosity. Since July 31, SASB’s health-care standards have been downloaded 730 times in 55 countries, with almost 60 percent of those downloads coming from the United States, explains Rogers. Representatives from Covidien, Pfizer, Medline, Novo Nordisk and Merck, for example, all downloaded the standards.
“We expect there to be more uptick [in traffic],” she adds. “We’ve had a lot of questions from corporations about data readiness.”
To assist corporations’ needs around sustainability data, SASB has teamed with Bloomberg, which will provide industry benchmarking around the level of companies’ sustainability disclosures. The two organizations also plan to work with business partners in securities law, form 10-K preparation and data management and verification.