SASB Standards
Since its initial introduction to the market in 2011, Sustainability Accounting Standards Board (SASB) standards have, for more than a decade, served the purpose of establishing a standardised, consistent, and comparable sustainability reporting framework. Previously maintained by the Value Reporting Foundation (VRF), SASB standards have enabled the effective identification, management as well as disclosure of decision-useful and financially material sustainability information, all catered specifically to the interests of investors and other capital market participants. Efforts to further streamline ESG disclosure partly to avoid ESG’s “alphabet soup” have led to the merger between the SASB and the International Integrated Reporting Council (IIRC) in June 2021, forming the previous VRF. Following its most recent merger with the accountancy standards-setter - The International Financial Reporting Standards (IFRS) Foundation in August 2022, the SASB will continue to serve investors and stakeholders, until its eventual replacement by IFRS’s Sustainability Disclosure Standards, i.e., the International Sustainability Standards Board (ISSB), which was built on SASB’s industry-based approach.
The term "sustainability" as used in the SASB refers specifically to the actions undertaken by companies to preserve or improve their long-term value-creation capabilities. While some reporting frameworks concentrate on specific issues, such as the Task Force on Climate-related Financial Disclosures (TCFD), which has emerged as the prominent standard for disclosing corporate climate change information, others like the SASB takes an industry-based approach by developing a comprehensive set of 77 categorised sustainability accounting standards. It takes into industry-related considerations including a minimum set of industry-specific disclosure topics, relevant accounting metrics, technical protocols…etc. For instance, the specific sustainability accounting standard for the financial services industry denoted as FN-IB, covers a number of sub-sectors including FN1 Capital Markets, FN2 Corporate & Retail Banking and FN3 Insurance. The three categories encompass activities which involve assisting in capital raising, providing financial advisory, as well as engaging in market-making. The primary distinctions in accordance with the Sustainable Industry Classification System® (SICS®) unique to SASB were made to reflect both the differences in their primary economic activity as well as their specific sustainability characteristics.
“We are convinced that the industry-based approach used to develop the SASB Standards is a market-validated model for the development of decision-useful and cost-effective sustainability disclosure standards.” - Emmanuel Faber, ISSB Chair
The SICS® sub-groups, instead of grouping companies with respect to their financial and market characteristics, profile companies using sustainability profiles. Another key merit that makes the SASB valuable as an ESG framework for companies, investors, and stakeholders is its close alignment with financial reporting. This will be explained using an example of Securitization transactions. Securitization transactions are in simple words, the converting of financial assets into tradable securities. The return associated with these securities depends on the performance of the underlying assets. Given the ever-increasing cost of carbon permits, ESG evaluation of individual assets becomes more relevant than ever. In the case of asset-backed securities (ABS) backed by real energy transition projects, ESG evaluation against the SASB could focus on analysing various environmental aspects, such as the measurement of carbon footprint. In prudently recognising the significant impact of non-financial factors on the company’s financial performance, the SASB, ultimately helps investors compare companies within the industry on their sustainability performance using a clear and standardised framework, enabling better-informed investment decisions.
UBS is one of the financial services companies that report ESG performance in accordance with the SASB. A reading of its 2022 Annual Report (AR) following the SASB index, focusing on climate-related factors, reveals commitments to incorporating ESG considerations. Under the accounting metric “Asset Management & Custody Activities”, SASB code FN-AC-270a.3 points towards page 43 of its 2022 AR, revealing UBS’s current practices and strategies as well as aspirations for managing climate-related financial risks. Notably, UBS has made progress in managing climate-related financial risks, including an increase in invested assets in sustainable investments and notable reductions in emissions intensity and financed emissions associated with fossil fuel companies. Progress made in 2022 includes an increase in invested assets in sustainable investments to USD 268bn, up from USD 251bn in 202, an 8% reduction in the emissions intensity of UBS’s residential real estate lending portfolio, 42% reduction in absolute financed emissions associated with UBS loans to fossil fuel companies…etc. Decarbonization targets for 2030 include lowering emissions intensity in UBS's commercial real estate lending portfolio by 44%, reducing absolute financed emissions linked to UBS loans to fossil fuel companies by 71%…etc. UBS's ESG efforts exemplify its proactive approach to using the SASB framework to address environmental challenges while creating long-term value for stakeholders.
The SASB reporting framework has played a crucial role in establishing a standardised and comparable sustainability reporting system over the past decade. In addition, the recent mergers between the IIRC and the IFRS Foundation would enable the further solidification of SASB's position as a valuable ESG framework for financial investors and capital market participants until its eventual replacement by the ISSB.