After six years of preparation, an independent standard-setting organization has published a set of accounting standards aimed at promoting sustainable development.
The Sustainability Accounting Standards Board said its standards are the first to combine industry specificity with financial materiality, offering investors a unique tool for comparing the sustainability performance of companies.
“This is an important milestone for global capital markets,” SASB Chair Jeffrey Hales said in a news release. “Companies and investors around the world now have codified, market-based standards for measuring, managing, and reporting on sustainability factors that drive value and affect financial performance.”
As Barron’s reports, there has been no standardization of how, for example, companies “disposed of toxic waste, or consume energy, or manage workplace safety.”
“In the past, companies have struggled with what to report, which makes it tough for investors to compare companies,” Barron’s said. “The new standards provide clarity to the companies, as well as investors.”
SASB, which was established in 2011, worked on the standards with investors and companies for six years. They cover 77 specific industries, recognizing, for example, that chipmakers have very different water and waste demands than a software company would.
Adoption of the standards is voluntary but according to the board, industry leaders including GM, Merck, Nike, Kellogg’s, and JetBlue have begun using its standards.
“The SASB standards provide the best framework to for companies to clearly understand the key sector specific sustainability issues that can impact financial performance, which are issues that all investors should care about,” Bud Sturmak, founder of Bluesky Investment Management, told Barron’s.
SASB said it will follow a regular, multi-year cycle of updates “to ensure the standards remain relevant and responsive to evolving market needs.”
“SASB’s newly codified standards will help companies around the world focus on the sustainability issues that matter to financial performance and to better communicate their performance on these issues to global investors in a decision-useful and comparable way,” said Robert Herz, SASB Foundation Board Member and former Chairman of the Financial Accounting Standards Board.