SASB's Conceptual Framework

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  • CONCEPTUAL FRAMEWORK

    OF THE SUSTAINABILITY ACCOUNTING STANDARDS BOARD

    October 2013

  • CONCEPTUAL FRAMEWORK

    2013 SUSTAINABILITY ACCOUNTING STANDARDS BOARD 1

    Contents

    Introduction.................................................................................................................................................... 3

    About SASB .............................................................................................................................................. 3

    Objectives of Sustainability Accounting and Disclosure ............................................................................... 3

    Purpose of Sustainability Accounting and Disclosure ............................................................................... 3

    Relationship with Financial Accounting ..................................................................................................... 3

    Users of Sustainability Accounting Standards .......................................................................................... 4

    Beneficiary of Sustainability Accounting Standards .................................................................................. 5

    The Reasonable Investor ...................................................................................................................... 5

    Specific Considerations for Institutional Investors -- Fiduciary Duty and Portfolio Risks ...................... 5

    How Investors Use ESG Data in Financial Analysis ................................................................................. 5

    Key Definitions and Characteristics of Sustainability Accounting and Disclosure ........................................ 7

    Sustainability ............................................................................................................................................. 7

    Materiality .................................................................................................................................................. 8

    Industry Focus ........................................................................................................................................... 9

    Decision-usefulness ................................................................................................................................ 10

    Cost-benefit Analysis .............................................................................................................................. 10

    SASB Principles and Criteria .................................................................................................................. 11

    Methodology for Assessing the Materiality of Sustainability Issues ........................................................... 13

    Evidence-based Determination of Materiality ......................................................................................... 13

    Evidence of Interest ............................................................................................................................ 14

    Evidence of Financial Impact .............................................................................................................. 15

    Forward-looking Adjustment ............................................................................................................... 16

    Sustainability Characteristics of Industries ............................................................................................. 17

    Industries with Strong License to Operate .......................................................................................... 17

    Use of Common Capitals .................................................................................................................... 18

    High Costs on Society and Negative Environmental Externalities ...................................................... 18

    Systemic Sustainability Issues ................................................................................................................ 19

    Structure of Sustainability Accounting Standards ....................................................................................... 19

    Disclosure Guidance ............................................................................................................................... 19

    Accounting Metrics .................................................................................................................................. 20

    Interpretations ......................................................................................................................................... 20

    Technical Bulletins .................................................................................................................................. 20

    Implementation ............................................................................................................................................ 20

    Standards Development .......................................................................................................................... 20

    Inclusion of Sustainability Accounting Standards in the Form 10-K ....................................................... 23

  • CONCEPTUAL FRAMEWORK

    2013 SUSTAINABILITY ACCOUNTING STANDARDS BOARD 2

    Managements Discussion and Analysis ............................................................................................. 23

    Other Relevant Sections of Form 10-K ............................................................................................... 23

    Auditing ................................................................................................................................................... 24

    Adoption .................................................................................................................................................. 24

    Updating the Standards .......................................................................................................................... 24

    Harmonization ............................................................................................................................................. 24

    SASBs Relationship to ESG Issues of SEC Concern ............................................................................ 24

    Harmonization with other reporting guidelines and frameworks ............................................................. 25

    SASB and Integrated Reporting .............................................................................................................. 25

    Appendix I: SEC Disclosure Requirements ................................................................................................ 26

  • CONCEPTUAL FRAMEWORK

    2013 SUSTAINABILITY ACCOUNTING STANDARDS BOARD 3

    Introduction

    This Conceptual Framework sets out the basic concepts and definitions behind SASBs sustainability

    accounting standards (the SASB Standards) and serves as additional guidance for the adoption of the

    standards by corporations and the use of material sustainability information by investors.

    ABOUT SASB The Sustainability Accounting Standards Board (SASB) provides sustainability accounting standards for

    use by publicly-listed corporations in the U.S. in disclosing material sustainability issues for the benefit of

    investors and the public. SASB standards are designed for disclosure in mandatory filings to the

    Securities and Exchange Commission (SEC), such as the Form 10-K and 20-F. SASB is an independent

    501(c)3 non-profit organization and is accredited to set standards by the American National Standards

    Institute (ANSI).

    Objectives of Sustainability Accounting and

    Disclosure

    PURPOSE OF SUSTAINABILITY ACCOUNTING AND DISCLOSURE The purpose of sustainability accounting is to evaluate the environmental, social and governance

    performance of companies through an account of their management of various forms of non-financial

    capital associated with sustainability environmental, human and social and corporate governance

    issues, which they rely upon for sustained, long-term value creation1.

    Ultimately, the goal of sustainability accounting and disclosure is to inform development of an integrated

    business strategy for corporate management and assess sustainability risks and opportunities inherent to

    investment decisions.

    Sustainability accounting and disclosure is intended as a complement to financial accounting, such that

    financial information and sustainability information can be evaluated side by side and provide a complete

    view of a corporations performance and value creation, both financial and non-financial, and across all

    forms of capital.

    RELATIONSHIP WITH FINANCIAL ACCOUNTING Financial accounting is concerned with the conceptualization of capital flows, its concrete expression in

    numbers, as well as budgeting, monitoring, and reporting to the capital markets.2 The Financial

    Accounting Standards Board (FASB) and U.S. Generally Accepted Accounting Principles (US GAAP)

    provide a framework for quantifying and reporting, in financial terms, the assets, liabilities, and owners

    equity (capital) of the reporting entity. This capital is the difference between the measured and

    reported assets and the measured and reported liabilities.

    Financial accounting already addresses some elements of non-financial and sustainability performance.

    A