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October 31, 2012
Initiative Will Help Quantify Corporate Reporting on Sustainability Issues
    by Robert Kropp

The Sustainability Accounting Standards Board will develop industry-specific key performance indicators for inclusion by companies in their annual financial reporting to the Securities and Exchange Commission.

A potentially important initiative for sustainable investment was launched this month. The Sustainability Accounting Standards Board (SASB) "has been founded to fill a current void in corporate reporting by quantifying the value of corporate non-financial information," according to a press release from the organization.

SASB is the brainchild of Harvard University's Initiative for Responsible Investment (IRI), among whose founding members is Steve Lydenberg of Domini Social Investments. In 2010, Lydenberg and his IRI associates co-authored From Transparency to Performance, a report which bluntly asserts that mandatory corporate reporting on sustainability issues is "inevitable."

The report further "proposes a method for identifying key performance indicators (KPIs) on the sustainability—or social and environmental—impacts of US corporations in specific industries." SASB was then formed "to advance the concepts of industry-specific performance indicators and integrated reporting for the benefit of US publicly listed corporations, their investors, and the general public."

Why is mandatory reporting by companies on specific sustainability issues so important? "The purpose of mandatory reporting is to allow for apples-to-apples comparison by industry, but the issues that are of greatest relevance to different industries are different," Lydenberg told when the IRI report was published. "There are two ways of solving that problem. Either every industry reports on every indicator, and you pick and choose and make your comparisons; or, you identify the key performance indicators (KPIs) that will differ from industry to industry."

SASB's first initiative is the publication of a Materiality Map, which prioritizes a set of environmental, social, and corporate governance (ESG) related KPIs for 10 sectors and 89 industries. Over the next two years, SASB will finalize sustainability accounting standards for all the sectors and industries. The KPIs will be designed in a form suitable for corporate disclosures in 10-K financial reporting to the US Securities and Exchange Commission (SEC).

Increasing the industry-specific relevance of KPIs will help investors and research analysts, as well as companies, according to SASB. Investors, for example, will be provided "with decision-useful information to assess the long term value creation potential of a company or industry, based on how well it manages all forms of capital in a resource constrained world," the organization states.

Harvard Business School Professor Robert Eccles, the founding chairman of SASB, said, "We wouldn’t have the capital markets that we have today in terms of scope, depth and liquidity if investors didn't have credible information for financial reporting. Transparency is equally important for non-financial reporting, and that is at the core of SASB's mission."


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