The final set of standards, targeted for use by public companies and investors, address the environmental, social, and governance (ESG) issues likely to be material for businesses in the following seven industries in the financials sector:
- Asset management and custody activities
- Commercial banks
- Consumer finance
- Investment banking and brokerage
- Mortgage finance
- Security and commodity exchanges
“The financials sector is unique, in that it’s comprised of both issuers and investors,” Jean Rogers, PhD, founder and executive director of the SASB, said in a written statement. “As issuers, financials companies can compete and improve performance on the sustainability issues most relevant to business success. As investors, financials companies can compare corporate performance on material sustainability issues and direct capital accordingly.”
This past July, the SASB unveiled its first set of provisional accounting standards that focus on the health care sector, and the San Francisco-based 501(c)3 not-for-profit organization is planning on developing standards for eighty-plus industries in ten sectors over the next two years. The SASB is accredited to set standards by the American National Standards Institute (ANSI).
The SASB standards will be used by public companies for disclosing material ESG sustainability issues that benefit investors and the public. Under federal Regulation S-K, corporations are required to report all material issues in mandatory filings to the US Securities and Exchange Commission (SEC), like Form 10-K.
The standards – which identify the minimum set of sustainability issues for each industry – are designed to be cost effective for companies and decision useful for investors. According to the SASB, the average number of sustainability issues in each financials standard is four. Seventy-eight percent of suggested accounting metrics are quantitative.
The SASB standards development process includes research supported by Bloomberg data, multistakeholder industry working groups, a public comment period, and review by an independent standards council.
The working groups for the financials sector, which convened in February 2013, resulted in 302 survey responses from members representing publicly traded companies with more than $1.3 trillion in market capitalization and investment firms with more than $5 trillion in assets under management.
The provisional accounting standards will address several issues that fall under ESG within each of the seven financials sector industries. For example, in the commercial banks industry, the SASB has identified the following material sustainability topics:
- Financial inclusion and capacity building
- Customer privacy and data security
- Integration of ESG risk factors in credit risk analysis
- Management of the legal and regulatory environment
- Systemic risk management
“We support the advancement of credible and reliable nonfinancial reporting,” said Todd Rahn, an audit partner at Deloitte & Touche LLP. “We continue to follow the SASB’s efforts, among several related initiatives, and are pleased to see its progress through the launch of the provisional standards for the financials sector.”