What is the Sustainability Accounting Standards Board (SASB)?

pany

Introduction to the Sustainability Accounting Standards Board

SASB stands for Sustainability Accounting Standards Board, and it is an international organization that focuses on setting sustainability-specific standards at sector levels. SASB’s vision is to enable companies to report on financially relevant ESG information in a coherent format that is easily comparable as well as trustworthy. SASB has been very useful in giving stakeholders relevant information while at the same time increasing corporate responsibility.

SASB is essentially aimed at introducing ESG factors into annual and quarterly reporting to help companies and investors see sustainability through the financial lens. The standards are well known for being integrated with other international reporting frameworks such as the Global Reporting Initiative (GRI) and the International Sustainability Standards Board (ISSB).

SASB Sustainability Aspects

History and Background of SASB

The Sustainability Accounting Standards Board was established in 2011 to efficiently respond to the demand for disclosure about ESG factors. The organization was established when the lack of comparability in sustainability reporting was a challenge. This was while investors and stakeholders wished to determine various sustainability risks and opportunities for businesses.

Among the key highlights of SASB’s implementation process, one of the crucial ones occurred in 2018 when SASB launched its 77 industry standards to better address sustainability issues for different industries, including financial, agricultural, etc. For these standards, systematic literature reviews and engagements of all the stakeholders in the development process were conducted to ensure validity and credibility.

SASB associated with IIRC in 2021 to establish the Value Reporting Foundation (VRF), which shifts SASB into a more effective role regarding sustainability reporting globally. SASB standards were incorporated into the framework of global financial reporting in 2022 when VRF became a part of the International Financial Reporting Standards (IFRS) Foundation.

The Role of SASB in Sustainability Reporting

Industry-Specific Standards

SASB’s industry-specific standards provide tailored guidelines for sustainability reporting, recognizing that ESG challenges differ across industries. For the fashion and retail sector, these standards address critical topics such as:

• Raw Material Sourcing: SASB encourages reporting on the environmental and social impacts of sourcing raw materials like cotton, wool, and synthetic fibers. Companies such as Patagonia disclose the sustainability credentials of their raw materials to demonstrate their commitment to ethical sourcing.
• Labor Practices: The sector’s reliance on global supply chains makes labor practices a significant focus. For instance, SASB standards emphasize transparency in fair wages, safe working conditions, and prevention of child labor. Fashion brand H&M uses SASB metrics to disclose progress on worker well-being in its supply chain.
• Waste Management: The fashion industry’s waste problem is a critical issue. SASB standards encourage disclosures on strategies to reduce textile waste, such as recycling initiatives and circular economy models. Brands like Adidas highlight their efforts to create products from ocean plastic, aligning with SASB standards.

Importance of SASB Standards 

• Enhanced Transparency: SASB standards are helpful in presenting different ESG information comprehensibly, as well as on the same basis for different markets. In practical terms, this means delivering on topics such as supply chain responsibility and carbon footprint to fashion and retail companies.

For instance, Levi Strauss & Co has adopted SASB standards for reporting on how they are conserving water in the production of jeans.

• Improved Decision-Making for Investors: More specifically, investors are integrating ESG risks and opportunities into those decisions. SASB standards help them get relevant information to measure the impacts of sustainable management on the company’s finances.

For instance, Gucci’s parent company, Kering, discloses SASB-aligned materiality to demonstrate its commitment to sustainable innovation, including the development of Mylo™ — an artificial leather made from mushrooms.

• Alignment with Global Frameworks: By their form and content, SASB standards enhance other frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD) and the Global Reporting Initiative (GRI). This means companies can consolidate their ESG coverage in multiple outlets with ease.

Burberry also integrates SASB-defined reporting with TCFD regulation and further demonstrates how it addresses climate risks as well as sustainability initiatives.

• Reputation and Competitive Advantage: In the fashion and retail industry, customers are now more conscious about the brands to which they are opting. SASB standards’ implementation to craft disclosures enables businesses to show that they uphold exemplary ESG practices, hence giving them a competitive advantage.

A study showed that more than 60 percent of Generation Z consumers prefer to shop from sustainable brands. Some of the brands that have adopted this strategy include Everlane which offers information on its factory conditions and environmental effects.

• Regulatory Readiness: With governments around the world tightening ESG rules, having SASB standards in place means that organizations are ready to meet these guidelines. The European Union’s Corporate Sustainability Reporting Directive (CSRD), for instance, requires companies to produce sound ESG disclosures, which are consistent with SASB guidelines.

Key Features of SASB Standards

Materiality Focus 

The concept of materiality is unique to SASB and is defined as the significance and relevance of environmental features to an organization and its stakeholders. Unlike the other broad frameworks used for ESG reporting, SASB suggests the most material sustainability concerns that deserve investors’ attention to a firm’s finance and value creation.

For the fashion and retail sector, this materiality focus makes sure that every business reports information that is important to the sector. For example:

• Raw Material Sourcing: The differences in the effects of cotton, wool, and synthetics on water use, CO2 emissions, and labor. SASB standards thus focus on the supply chain process and the disclosures relating to cost savings from sustainable sourcing and risks associated with reputation.
• Waste Management: That is why, textile waste remains one of the most important material components of contemporary retailers’ and brands’ management systems and affects resource efficiency and consumer view. Other firms such as H & M express their policies on SASB standards for waste management to attract both investors and consumers with conscience.

Global Applicability

SASB standards are universal, making it possible for all organizations from every part of the world to apply sustainable accounting standards. This is important, especially for industries such as fashion and retail where the supply chain is international with different requirements and players across different nations.

For instance:

• Zara’s Parent Company, Inditex: In the case of Inditex, key performance indicators are disclosed based on Integrating SASB metrics to address issues with water, and chemical safety through the supply chain. It also assists the firm in having a consistent and compliant working model as it transitions from being in Europe to Asia or the Americas.
• Global Operations: No matter whether a retailer is in Bangladesh, a major sourcing destination for garments, or in the United States, the SASB’s universally applicable materiality means that sustainability disclosures can be presented globally that align with investors’ expectations.

Alignment with Other Frameworks

SASB standards complement and integrate seamlessly with other major frameworks, such as the Global Reporting Initiative (GRI), Task Force on Climate-related Financial Disclosures (TCFD), and the Corporate Sustainability Reporting Directive (CSRD). This alignment enhances the comprehensiveness and usability of sustainability reports.

For example:

• GRI and SASB: GRI focuses on a broad range of ESG issues, while SASB narrows its lens to financially material factors. A company like Adidas might use GRI to report on broader community impacts while leveraging SASB for financial materiality metrics like energy use in manufacturing.
• TCFD and SASB: While TCFD emphasizes climate-related risks, SASB provides industry-specific guidance on these risks. For instance, a fashion brand can report TCFD-aligned data on greenhouse gas emissions while using SASB standards to highlight how emissions impact raw material costs and supply chain efficiency.

How SASB Benefits Businesses and Investors

Enhanced Reporting Quality

SASB standards improve sustainability reports’ reliability, making ESG communication easier for investor decision-making. Especially, since sustainable practices are most applicable in fashion and retail industries, as they dictate brand equity and day-to-day functioning.

Better Investment Decisions

SASB standards help investors be able to understand sustainability risks and opportunities with more accuracy. SASB standards improve sustainability reports’ reliability, making ESG communication easier for investor decision-making.

• Example: Investors use SASB disclosures to assess H&M’s efforts in reducing textile waste and using sustainable fabrics.
• Fact: ESG investment grew to $35.3 trillion in 2020, highlighting the need for quality ESG data for investors.

Building Stakeholder Trust

SASB disclosures enhance transparency, boosting confidence among stakeholders, consumers, employees, and shareholders. In fashion, consumer trust in practices directly impacts loyalty and sales.

Challenges in Implementing SASB Standards

Understanding Materiality Across Industries 

Determining significant ESG risks and opportunities for each sector complicates using SASB standards. Understanding factors influencing sustainability and financial performance poses significant challenges for businesses.

In the fashion and retail sector, for instance:

• Raw Material Dependency: Corporate management needs to determine whether the sustainability of inputs like organic cotton or recycled polyester is relevant to the company’s financial performance. The challenge is to measure the effectiveness of environmental cost as opposed to consumers’ appetite for eco-friendly products.
• Fast Fashion vs. Luxury: While fast fashion retail brands will pay more attention to the management of waste and treatment of employees, luxury retail brands will prefer to address issues to do with supply chain and sourcing. It can turn relatively subjective and often involves a large amount of work when trying to decide on materiality.

Limited Awareness and Adoption

The second issue of grave concern is the low level of disclosure of SASB standards, especially among SMEs. Large companies adopt SASB, but smaller ones often lack knowledge or skills to implement the frameworks effectively.

For example:

• Operational cost is a major concern in the retail industry, hence, local fashion retailers do not consider structured ESG reporting. Essentially, they fail to catch a break to woo sustainable-minded investors or customers in the case of retailers.

Integration with Existing Reporting Frameworks

The integration of SASB standards with other sustainability reporting frameworks such as GRI, TCFD, and CSRD may not be easy. Integrating frameworks into businesses is challenging, requiring effort for smooth and comprehensive reporting.

For instance:

• A fashion brand might already use GRI to report on broader community impacts and TCFD for climate risks. Adding SASB’s industry-specific standards requires reconciling overlapping metrics and ensuring consistency across disclosures.
• Example of Complexity: Nike faces challenges aligning SASB supply chain emissions with TCFD’s climate resilience requirements, demanding significant resources.

Real-World Examples of SASB Implementation

Companies Leading in SASB Reporting

Several global corporations have successfully implemented SASB standards, demonstrating their effectiveness in improving sustainability reporting.

Nike, Inc.

Nike uses SASB to report water usage, waste management, and labor practices across its global supply chain. Nike’s focus on sustainable manufacturing and ethical labor strengthened its position as a sustainable fashion leader. Detailed disclosures improved transparency, attracting eco-conscious consumers and investors while enhancing the brand’s market reputation.

H&M Group

H&M uses SASB to report circular economy efforts, including recycled fabrics and sustainable textile waste practices. The company highlights waste reduction and transparency, showcasing responsibility and innovation using SASB standards.

Success Stories in Sustainable Investment

General Motors (GM)

GM adopted SASB to disclose EV transition plans, focusing on emissions and sustainable manufacturing. GM’s sustainability goals boosted EV investments by 27% in 2022, accelerating its transition to a low-carbon future.

Lululemon Athletica

Lululemon uses SASB to report environmental impacts of synthetic fibers and labor practices in its supply chain. Transparent disclosures helped secure $500M green bonds in 2023, funding sustainability and attracting ESG-focused investors.

Conclusion

SASB ensures industry-specific sustainability reporting, aiding businesses in addressing ESG issues and aligning with global frameworks. For sectors like fashion and retail, adopting SASB standards enhances credibility and supports long-term success.

Embrace SASB standards to improve sustainability reporting and build stakeholder trust. Simplify the process with Carbon Trail, a solution designed to integrate SASB into your strategy for accurate and impactful reporting. Start your journey toward sustainability today!