As the globe makes strides towards a sustainable future, your business cannot stay far behind. Indeed, there is no option for being left behind. In one of their studies, Harvard Business School established that businesses or companies with better ESG sustainability performance on SASB material topics enjoy improved performance of their stocks and accountability-related profits.
This conclusion by Harvard Business School has been proved right by dozens of other organizations, including the United Nations, which recently indicated that up to USD 12 trillion can be unlocked every year through the implementation of Sustainable Development Goals (SDGs). However, ESG sustainability reporting can be challenging because of the standards involved and the costs. To get this right, you need to properly understand the process of ESG reporting, especially in identifying material topics. Let’s dig deeper into the concept of SASB materiality in ESG reporting.
SASB and SASB Materiality Standards
SASB, the shortening for Sustainability Accounting and Standards Board, is one of the common ESG reporting frameworks designed to set standards for disclosure of information that is financially material for businesses/ companies and interested investors.
It requires companies to provide highlights on specific disclosures for guidance about the best model for disclosing and communicating ESG topics using standardized formatting.
One unique attribute about SASB that makes it one of the best standards for the disclosure of sustainability information is that it is pretty flexible. It targets the information to be disclosed in every industry but only gives recommendations on sharing the info. This means that more organizations can share data via means that make sense to them, perhaps registration documents, annual reports, or other recommended financial reporting models. So, which method of disclosure do you prefer for your company?
SASB Materiality: Why is It So Important?
ESG issues can have either positive or negative implications on your enterprise’s model and important value drivers, such as profitability, value growth, capital requirements, and risks. Therefore, SASB materiality is aimed at helping to ensure that the data likely to have impacts in the decisions taken by investors is accurately disclosed.
As we highlighted already, companies have the freedom to determine the details about their services, products, or management to be disclosed to investors factoring in all the related logistical and regulatory constraints. Because of the growing data on sustainability, some companies find narrowing to the most value topics for decision-making a major challenge.
SASB materiality identifies material issues likely to affect the financial conditions of a company. Therefore, these are considered the most important to investors. For example, does cutting emissions help to increase efficiency of production and reduce the operating costs significantly?
This is the information that stakeholders interested in investment would be interested in, but it must be reported accurately and following the selected standard outlined in a trusted framework, such as SASB.
SASB Materiality Map Application in Your Company
SASB identified a full set of environmental, social, and governance (ESG) metrics that are most important in 77 industries. It explains these standards using materiality that your company should use to identify and compare the topics for disclosure in your respective sector.
SASB financial materiality map further narrows down to 26 ESG-related issues, which are commonly referred to as “General Issue Categories" that include specific disclosure topics and accounting metrics. These categories can be grouped into the following:
- Environmental.
- Human capital.
- Social capital.
- Leadership and governance.
- Business model and innovation.
At this point, you need to carry out a comprehensive analysis of your company to determine what topics are likely to be material or relevant to investors and the planet. Let's take an example here. A real estate company might want to prioritize water use, energy, and wastewater topics as the property industry's most important/material concerns.
These topics would have major financial impact to the company and investors would be greatly interested in them.
Using SASB materiality to identify reporting topics is important for ESG reporting. Remember also to engage stakeholders in the early stages of ESG reporting and work with appropriate reporting software. If you are new to ESG sustainability or running a complex organization, it might be crucial to bring on board an expert on SASB materiality for assistance. Diginex.com is your one-stop point for all ESG reporting needs, including the use of SASB materiality and latest sustainability apps to create better reports to win the support of stakeholders.
