Evaluating the Effectiveness of Sustainability Disclosure: Findings from a Recent SASB Study

Abstract

Early research into the relationship between corporate sustainability programs and financial performance suggests a positive relationship between strong sustainability performance and a lower cost of capital. As investors increasingly incorporate sustainability information into financial decisionmaking, the importance of high‐quality sustainability disclosure is growing. Just as investors have relied on financial disclosures based on generally accepted accounting principles (GAAP) to assess corporate risk, a market standard is needed to help companies disclose comparable sustainability information.To address this issue, the Sustainability Accounting Standards Board (SASB) conducted a recent analysis of the current state of sustainability disclosure in annual Securities and Exchange Commission (SEC) filings. The study reviewed the disclosures of over 700 U.S.‐and foreign‐domiciled companies, focusing on material sustainability topics as identified by SASB's industry‐specific accounting standards. The authors find large variations among different corporate sectors in the frequency and quality, as well as the focus, of their sustainability disclosures. Then, after examining in detail disclosures within the SASB Resource Transformation and Consumer Staples sectors, the authors suggest a number of possible drivers of this variation, including key sustainability and economic trends, while also presenting evidence of increasing investor interest in sustainability information. Although the authors' analysis was not intended to determine the extent to which the quality of sustainability disclosure affects investor returns, the findings provide a useful baseline for the as yet largely unexplored relationship between sustainability disclosure and corporate financial performance.