Accounting for sustainable, long-term value

In recent years, corporations and investors alike have demonstrated an increasing interest in ensuring their financial performance can be sustained over the long term. A new set of rigorously developed, investor-focused sustainability reporting standards aims to help. We believe that this latest evolution in the landscape of corporate reporting will create a lasting wave of new opportunities for the accounting profession.

Capturing performance

In November 2018, the Sustainability Accounting Standards Board (SASB) opened the London  Stock Exchange to mark the launch of a set of standards that provide industry-specific, evidence-based and market-informed metrics. These standards are designed to capture performance on the sustainability issues most likely to have material financial impacts on companies in each industry.

Why industry based? For an oil and gas company, a key sustainability issue is the sensitivity of its hydrocarbon reserves to future scenarios that account for a price on carbon emissions. For a beverage manufacturer, long-term success will depend more on how it manages water consumption, particularly in stressed regions, to avoid supply disruptions or added costs. In short, when viewing sustainability through the lens of financial materiality, each industry has its own unique profile.

These standards are the culmination of six years of effort, during which time thousands of corporate professionals, investors and industry experts provided input on the standards. The extensive feedback from outreach and public comment periods helped shape the codified set of 77 industry standards and has enabled SASB to gain the broadening market support it has today.

Gathering support

As visible evidence of that support, members of SASB’s Investor Advisory Group represent the world’s leading asset owners and managers with approximately $29trn in assets under management. Their firms include Aberdeen Standard, BlackRock, Vanguard, State Street, Goldman Sachs, Morgan Stanley, PIMCO and UBS, among others. Why would investors support SASB? As Nordea Asset Management has said: “Incorporating SASB standards in our environmental, social, and governance (ESG) analysis enabled us not only to better assess and identify the financial materiality of ESG issues, but also to identify the relevant indicators or data points that could reflect a company’s positioning on those issues.”

SASB has also begun to see increasing uptake of its standards by companies around the world, including ArcelorMittal, Diageo, The Gap, General Motors, Kellogg’s, Nike, Peugeot, Schneider Electric and many others. For companies looking to comply with the EU’s non-financial reporting directive, SASB standards have been recognised by the European Commission as a suitable basis for providing such information. And, as JetBlue Airways has said: “The SASB standards allowed us to better target investors by focusing on the ESG metrics material to our industry, rather than on broad metrics that are less applicable to aviation.”

Opportunities for the profession

Back in 2004, ICAEW’s forward-thinking publication Sustainability: The Role of Accountants pointed out that increasing attention to – and technical rigour around – sustainable business would offer broad opportunities to both the accountancy profession and society at large. That time has come. With the launch of SASB’s rigorous industry-specific standards and with corporations acknowledging the need for investor-grade data, markets increasingly need accountants’ expertise in measurement, controls, assurance and reporting. Is the profession ready to seize these opportunities?

About the authors

Jeffrey Hales is chair of the SASB
Robert H Herz is a member of the SASB Foundation Board of Directors