Trying times have a way of bringing clarity and focus to priorities. Looking back at 2020, there was certainly no shortage of crises to do that, and though the economic, physical and emotional tolls seemed, at times, almost too much to bear, there is now cause for hope and optimism, writes SASB chair Jeffrey Hales
In particular, I would characterise 2020 as a year in which sustainability reporting not only picked up pace, but also one in which we began to see increased clarity in direction of travel.
The first sign of this was when the CEO of BlackRock, in his annual letter to CEOs, not only called companies to action by asking for improved disclosure of environmental, social and governance (ESG) issues, but pointed in a clear direction, asking specifically for companies to use the standards set by the Sustainability Accounting Standards Board (SASB) and to follow the Taskforce for Climate-related Financial Disclosure (TCFD) guidelines in their reporting.
Just weeks later, the CEO of State Street Global Advisors issued a similar letter to boards of directors and explained how SASB’s lens of financial materiality would be used to help SSGA weigh the various aspects of a company’s ESG performance, rather than just treating some issues as important or treating all issues as being equally important for all companies. Given the substantial assets under management of those two institutions, it is perhaps no surprise that companies appear to have taken note. As a result, we have seen remarkable growth in the number of SASB reporters, from 40 in 2018 – the year in which the provisional SASB Standards were first approved – to nearly 120 in 2019 and now 542 in 2020.
The growth in SASB reporters reflects not just increased demand from investors, but also increased acknowledgment from companies that ESG issues cannot be ignored. For example, when the Business Roundtable issued an updated statement on the purpose of a corporation in 2019, the CEOs’ stated commitment to serve all stakeholders caused quite a stir – both from opponents of that view and from supporters who were sceptical of empty words. However, in 2020, we saw corporations go a significant step further when 120 CEOs on the World Economic Forum’s International Business Council issued recommendations on sustainability metrics that could help show commitment toward achieving the UN Sustainable Development Goals.
Statement of intent
In 2020, we saw also clarity in the direction of travel for standard setters, as five leading standard setters and framework providers – CDP, CDSB, GRI, IIRC and SASB – published a Statement of Intent to Work Together Towards Comprehensive Corporate Reporting. This joint effort to align on a common language and shared vision for a comprehensive corporate reporting system is important because, while each organisation serves an important, yet distinct, mission, those missions are complementary, and working together can ease the reporting challenge that companies face.
In 2020, we also started to see indications that regulators and policy makers around the world may similarly be ready to point the markets they oversee in a particular direction. The Financial Reporting Council recently encouraged UK public interest entities to incorporate SASB Standards into their TCFD reporting. In addition, the European Commission is looking to develop non-financial reporting standards with focus on ‘double materiality’; the International Organization of Securities Commissions (IOSCO) has set up a Task Force on Sustainable Finance; IOSCO has committed to play a leading role in facilitating the development of a comprehensive global corporate reporting system, and the IFRS Foundation Trustees recently finished a three-month public consultation about whether to develop a new Sustainability Standards Board.
Looking back, the year ended much as it began, with clear expressions of investor demand for consistent, comparable, reliable sustainability information. The ‘Maple 8’, the largest pension fund investment managers in Canada, asked portfolio companies to use SASB Standards and TCFD Recommendations, SASB’s Investor Advisory Group issued an updated statement, calling on companies to use SASB Standards in disclosures to investors, and the board of governors of the Investment Company Institute – the leading global association of regulated funds in the US market –encouraged US public companies to provide disclosures aligned with SASB and TCFD.
Looking forward to 2021, I expect to see continued major developments in the ESG reporting ecosystem. As with 2020, rather than hearing many a cacophony of drumbeats in 2021, we will hear a clearer and louder marching drum. I also want to note that, as an accounting professor, I believe the accounting profession will need to play a major role in further shaping the market’s direction of travel and the speed with which we make progress.
Increased sustainability disclosure is an important step, but that information will be of higher quality when supported by internal controls and assurance, and will be more consequential when connected to strategy and used internally for performance measurement and evaluation. That is where we are headed. Accountants will help us to get there.