Sustainability Accounting Standards Board Research Articles

Beyond apples and oranges: unraveling the complexity in corporate sustainability reporting

PurposeThis investigation highlights the discrepancies in sustainability reporting practices, and their implications for sustainable service.Design/methodology/approachA comparative analysis methodology was employed, examining sustainability reports from similarly situated companies, specifically PepsiCo and Coca-Cola and The Home Depot, Lowe’s and HomePro. This approach was chosen to uncover variances in sustainability reporting and practices within these sectors using the Sustainability Accounting Standards Board (SASB) guidelines which all four firms followed in their sustainability reports.FindingsThe study reveals significant disparities in how companies within the same industry apply SASB guidelines. These inconsistencies highlight a broader issue of non-standardization in sustainability reporting, leading to challenges in effectively evaluating the relative performance of companies in the same sector.Practical implicationsThe findings suggest managers must prioritize standardized and transparent sustainability reporting to build stakeholder acceptance and trust.Originality/valueThis paper contributes to the existing literature by providing a detailed comparison of sustainability practices in two distinct industry sectors. It offers new insights into the challenges and importance of standardizing sustainability reporting and the potential impact on stakeholders.

Global focus on ESG in the supply chain – insights into supply chain management of Environmental, Social and Governance requirements and trends both locally and globally

In our increasingly interconnected world, responsible business operation has become a normal, critical part of doing business for virtually all industries. Consumers, investors, and other company stakeholders are demanding businesses take responsibility for their current and future impacts on people and the environment. When assessing the role corporations play in a more sustainable future, many turn their focus to Environmental, Social and Governance (ESG) factors that help define and measure sustainable business. Given the wide variety of topics encompassed in ESG, companies often identify which are material, or prioritised by company stakeholders. Quantitative and qualitative information for material ESG topics is often reported using a standard or framework such as the Task Force on Climate-related Financial Disclosures; Taskforce on Nature-related Financial Disclosures; Sustainability Accounting Standards Board; the Global Reporting Initiative and the Carbon Disclosure Project (CDP), along with other region-specific standards. One reporting challenge includes extending ESG strategies and data collection to a company’s value chain. By including ESG-related requirements in service contracts or pre-qualification metrics, expectations can be clearly communicated and data aggregation becomes simpler. Engaging with vendors on the importance of material topics and providing educational tools and opportunities is necessary for accurate data collection. Benchmarking companies against their peers allows organisations to make informed decisions to continue or halt business relationships. Every company’s approach to ESG will look different, but protecting the business’s reputation and customer expectations is critical to continuous operations. Outcomes: understanding different components of ESG. Recognition of the types of reporting disclosure frameworks. Best practices with contractors and suppliers.

Building a resilient future: collaborative sustainability regulation

Abstract The challenge of sustainability lies in achieving a balance between satisfying present needs and protecting resources for future generations with an emphasis on its three pillars—environmental, social and governance. This study explored sustainable development encompassing environmental, social and governance aspects along with sustainability reporting through various sustainability frameworks. A systematic review of literature for the period 2010–23 on major worldwide sustainability frameworks was conducted, by offering insights into enhancing reporting mechanisms for a sustainable future. Secondary data related to sustainability reports were obtained from the Sustainability Accounting Standards Board and International Integrated Reporting Council, which helped in examining sector and year variations across countries. The results reflected that mandatory sustainability disclosures help to meet the United Nations Sustainable Development Goals and global sustainability frameworks help to set standards, disseminate information and promote transparency. Collaboration of investment, company action and sustainability organizations can lead to a sustainable global economy. The adoption of sustainability reporting can help organizations by fostering a proper understanding of sustainability practices, improving transparency and identifying potential business opportunities in sectors with lower sustainability. The paper provided insights into sustainability reporting published across various countries in both advanced as well as emerging and developing economies. The analysis showed which sectors and time periods have had the most sustainability reports and which areas needed to be targeted for action to advance sustainable development.

Analysts’ recommendations on peer-relative comparable sustainability disclosure

This study delves into the financial impact of standardized sustainability disclosure on industry-wide risks and opportunities. Focusing on U.S. firms adhering to Sustainability Accounting Standards Board standards, our findings reveal heightened analyst coverage and favorable recommendations. Notably, these recommendations favor buy positions while discouraging sell positions. The research provides ex-post evidence on the financial implications of peer-relative standardized sustainability reporting, highlighting its value relevance for financial analysts’ recommendations.

Stock Price Reaction to Environmental, Social, and Governance News: Evidence from Brazil and Financial Materiality

This study explores the relationship between Environmental, Social, and Governance (ESG) practices and the market value of companies, with a focus on Brazil’s largest corporations. Recognizing the limitations of existing research tools for analyzing the impact of ESG factors, we introduce an innovative, open-source Dictionary of ESG Terms. This tool is designed to classify news content into the detailed categories established by the Sustainability Accounting Standards Board (SASB), thereby facilitating a nuanced analysis of ESG-related news and its subsequent effects on stock prices. Our analysis reveals that stock prices exhibit significant positive reactions to favorable ESG news and negative reactions to adverse ESG developments. Crucially, our findings underscore the discernment of investors, who appear to prioritize financially material ESG information over news bearing solely reputational or non-pecuniary significance. This distinction highlights the critical role of financial materiality in shaping market responses to ESG news. By providing empirical evidence from the Brazilian market, this study contributes to the broader discourse on ESG factors in corporate valuation. It offers practical tools and insights for investors, companies, and regulators aiming to better understand the complexities of ESG investment strategies. Through the application of our comprehensive ESG Dictionary, we shed light on the diverse dimensions of ESG impact, suggesting an approach to evaluate how ESG practices influence corporate market value in emerging economies.

The power of purpose: how material sustainability and stakeholder orientation drive financial success

Purpose Considering the standards developed by the Sustainability Accounting Standards Board (SASB), this study aims to examine whether the link between material sustainability and financial performance depends on the extent to which the company is oriented toward stakeholders. Design/methodology/approach To test the predictions, 13,942 firm-year observations from 43 different countries are used, covering the period from 2010 to 2019. Using a hand-mapping approach to match the indicators suggested by the SASB with those of the ASSET4, the authors realize that there are 170 material sustainability indicators among 466 indicators of the ASSET4. The authors use three different methods to verify if the materiality matters, including the alphas obtained from the Fama and French factor models, comparing the average abnormal returns of the portfolios and the bootstrapped Cramer technique. Findings The findings show that companies investing in material sustainability activities perform better than those investing in immaterial activities. Also, consistent with the theoretical foundations, the authors find that the effect of investing in material sustainability activities is more pronounced in stakeholder-oriented countries than that in shareholder-oriented countries. The results are robust to a battery of sensitivity tests. Research limitations/implications Owing to COVID-19 in late 2019, data from 2020 to 2022 have not been used to obtain reliable results. Practical implications The results obtained in the current research provide valuable guidance for investors to make investments considering the degree of materiality of sustainability activities in different industries. It also helps managers to increase the company’s financial performance, make efficient decisions related to investment in sustainability activities and find investment strategies on the material sustainability issues in their industries. Social implications This study provides a clearer understanding of investment in sustainability activities in different industries by separating material and immaterial sustainability activities in stakeholder and shareholder-oriented countries, and the results obtained can change the perspective of investors and company managers regarding investing in such activities in different countries. Investing in more materiality sustainability activities than the immateriality dimension can be new opportunities for companies to achieve predetermined goals, help retain and attract business partners or be a source of innovation for new product lines or services. Internal morale and employee engagement may increase while increasing productivity and firm performance. This discussion opens the way for future research. Originality/value This study provides insight into the effect of investing in material and immaterial sustainability activities in different industries on the company’s performance in shareholder and stakeholder-oriented countries.

Do sustainability reporting standards affect analysts’ forecast accuracy?

PurposeThis study aims to contribute to the emerging debate about materiality with novel insights about the signaling effects related to the disclosure of environmental, social and governance (ESG) information using the guidelines released by the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB).Design/methodology/approachAn empirical assessment using panel data analysis was built to evaluate the relationship between sustainability reporting standards and analysts’ forecast accuracy.FindingsThe analysis revealed that the proliferation of sustainability reports prepared on mandatory or voluntary basis mitigated the signaling effects related to the disclosure of ESG information by companies. Furthermore, the additional analysis conducted considering sustainability reporting quality and ESG performance revealed the existence of mixed effects on analysts’ forecasts accuracy. Therefore, the insights highlighted the need to consider a cautionary approach in evaluating the contribution of ESG data to financial evaluations.Practical implicationsThe practical implications consist of identifying criticisms related to disclosing ESG information by listed companies. In detail, the analysis underlines the need to enhance reporting standards’ interoperability to support the development of more accurate analysis by investors and financial experts.Social implicationsThe analysis reveals increasing attention investors pay to socially responsible initiatives, confirming that financial markets consider sustainability reporting as a strategic driver to engage with stakeholders and investors.Originality/valueThis research represents one of the first attempts to explore differences between GRI and SASB using an empirical approach.

중요성에 근거한 지속가능성 공시와 주가 정보성

[Purpose] This study analyzes the relationship between the amount of materiality-based sustainability information and stock price informativeness for Korean listed companies. In addition, the study investigates whether this relationship appears differentially according to the company’s information demand (uncertainty of profit information and degree of growth opportunity).
 [Methodology] The amount of materiality-based sustainability information is calculated based on the importance identified by Sustainability Accounting Standards Board among the ESG information disclosure data of individual firms provided by Bloomberg. Stock price informativeness is defined as stock price variations reflecting firm-specific information excluding market and sector influences.
 [Findings] The empirical results for 2,932 listed firm-year samples from 2010 to 2020 are as follows. First, the amount of materiality-based sustainability information showed a positive association with stock price informativeness. This suggests that material-based sustainability information has a company-specific information usefulness in terms of stock price information, suggesting that the information is usefully used in the capital market. Second, this relationship was found to be significant the more uncertain the company’s profit information and the lower the growth opportunity.
 [Implications] This study suggests the usefulness of sustainability information based on materiality, and provides policy implications in terms of preliminarily examining the impact on domestic companies when the International Sustainability Standards Board are applied in the near future. In addition, it has policy implications in that material sustainability information could have a differential impact on companies depending on the information demand.

Modified assessment methodology ESG competitiveness of enterprises to a new generation of investors

The article substantiates the expediency of modifying the methodology for assessing business competitiveness in the context of accelerated global ESG integration. The authors propose a system of criteria for assessing the competitiveness of enterprises, taking into account the requirements of the EU Taxonomy, Regulation (EU) 2020/852, the CSRD, and stakeholder requests for information support for assessing ESG risks and ESG competitiveness of enterprises. This system of criteria is based on a cognitive approach. Thanks to the use of modeling and information tools, it is based on a lateral understanding of the clarity of the distinction between the criteria and sub-criteria for assessing the ESG competitiveness indicator and its components. The introduction of a system of criteria for assessing the competitiveness of enterprises will ensure obtaining realistic results and making informed decisions to strengthen the competitive advantages of enterprises for a new generation of “conscious investors”. The author’s own methodology for integral assessment of ESG competitiveness of metallurgical enterprises is proposed. This methodology is based on the synthesis of integral and reference approaches to assessing the homeostasis of competitiveness. It is adapted to the information support of the Management Report prepared in accordance with the GRI (Global Reporting Initiative) and SASB (Sustainability Accounting Standards Board) standards. Its peculiarity is the assessment based on the extended homeostatic plateau of the dynamic system for determining the thresholds of the optimality of the ESG competitiveness indicator of enterprises. This should become the basis for ESG rating and the fundamental basis for determining strategic imperatives for managing the competitiveness of enterprises in the context of global ESG integration.

Conventional Sustainability Accounting Standards – Essence and Perspectives

The implementation of the concept of sustainability accounting assumes the adoption of a conventional reporting framework to set guidelines for presenting and disclosing useful information for satisfying the information needs of stakeholders’ groups. The standards developed by the Sustainability Accounting Standards Board could be an adequate reporting framework for satisfying investors’ information needs. The challenges for accounting science and practice are related to presenting and disclosing qualitative information by conventional reporting framework, which should satisfy the information needs of stakeholders’ groups in accordance with companies’ sustainability policy.

Analiza i audyt sprawozdawczości zrównoważonego rozwoju dla sieci handlowych i kierunków ich doskonalenia

In the modern world, the issue of achieving a sustainable economic development model is becoming more and more urgent. One of its components is compliance with the Goal of sustainable development by companies and verification by state authorities and independent auditors of companies in matters of environmental sustainability. Thus, consideration of modern methods of submission and audit of sustainable development reports (SDR), analysis of opportunities for their improvement becomes relevant. In this work, attention is paid to companies engaged in retail trade, taking into account the peculiarities that they face when submitting the SDR. The purpose of the research was to conduct an analysis of the most common methods of reporting on sustainable development and to develop an effective model (and recommendations for it) for auditing and analyzing sustainable development reporting. Modeling became the main method when writing the paper, taking into account the developed model of analysis and verification of the SDR. The article proposed a new model of verification of non-financial information in sustainability reporting and its graphical display in the audit report. On its basis, it becomes possible to build a new methodology for the audit of the SDR. In addition, the most common international methods of SDR were analyzed, namely the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB) and the International Integrated Reporting Council (IIRC). The authors concluded that the GRI is the most universal of the three, while the SASB is focused only on investors. IIRC, being similar to both described above, is an intermediate option. Nevertheless, submission according to the SASB system is the most effective for trade networks, taking into account the peculiarities of the functioning of this type of companies and the level of their influence on the external environment. The results of the conducted research and the data presented in the article make it possible to evaluate the modern methods of submitting financial statements in a new way and provide a basis for building new standards for the audit of these reports.

ESG analytics in investment decision making: in search for material information

Subject. The article considers approaches to determining information that is material for corporate reporting and analyses the way they affect the usefulness of the information presented to stakeholders and required for decision making. The choice of a particular approach determines the identification and formulation of material topics, information sources, and the target audience. Users need to understand the principal approach of the company to determining material information in corporate reporting in order to avoid controversies and unreasonable decisions.Objectives. The purpose of our study was to analyse approaches to defining material information for non-financial reporting and assess their impact on the usefulness of the information for stakeholders, primarily for investors.Research methods. The research involved using methods of comparative, logical, and financial analysis. The materials analysed were standards of financial and non-financial reporting, including frameworks and guidelines. The analysis was performed in order to define the concept of material information and requirements for it as well as suggested methods of identification of material topics and parameters to be presented in corporate reports of organisations. The following standards were analysed: GRI standards; standards by the International Sustainability Standards Board (ISSB); standards of the Sustainability Accounting Standards Board (SASB); Corporate Sustainability Reporting Directive (CSRD), and recommendations on disclosure of financial consequences of climate change of the Task Force on Climate-related Financial Disclosures (TCFD). The analysis of information disclosure practices was performed based on the sustainability statements of leading Russian companies operating in oil and gas industry and in steel industry for 2019-2021. We also used data from ESG ratings and rankings of Russian rating agencies.Results and discussion. The results of our study showed that while basic approaches to defining materiality suggested by leading international initiatives in corporate reporting have a lot in common, there are still crucial differences. The main difference is the focus on either the impact of external factors on the company (financial materiality) or the impact of the company on the society and environment (impact materiality). The understanding of these differences can help stakeholders to integrate the ESG information in the decision making process and use it to substantiate the decisions made. The problems revealed by the study, as well as the dynamic nature of the assessment of materiality of ESG data make it difficult to regulate the process of non-financial disclosure as compared to the disclosure of financial data. At the same time, the existing methods of determining material ESG information, taking into account industry specifics and based on the analysis of the organisation’s activities, its context, and requirements of the stakeholders, make it possible to find a practical solution to the problem.Conclusions. The conclusions and results of the study can be used to develop recommendations on public non-financial reporting for Russian companies taking into account the requirements of stakeholders.

Do investors incorporate financial materiality? Remapping the environmental information in corporate sustainability reporting

AbstractAlthough the consideration of financial materiality is important for securing shareholders' interests, the degree of financial materiality that is considered for existing sustainability ratings is still questionable. In this study, we hand‐mapped the financial materiality of environmental information based on Sustainability Accounting Standards Board (SASB) industry‐specific accounting metrics to reassess environmental performance. Based on the SASB‐based environmental score, we tested whether investors price environmental risk. The results show significant pricing anomalies related to environmental risk. Companies with lower SASB‐based environmental scores experience higher environmental risk. Additionally, a premium in the cross‐section of stock returns compensates for this risk. Our findings suggest that integrating financial materiality based on the SASB could be an effective way to capture corporate environmental risk.

Enhancing Firm Value through the Lens of ESG Materiality: Evidence from the Banking Sector in OECD Countries

Momentous developments in the regulatory environment, increasing investor demand, and growing awareness of climate change and societal issues are leading banks to adopt a comprehensive approach beyond the traditional financial lens. Assessing performance towards sustainability issues, including environmental, social, and corporate governance (ESG), and its’ relevance in firm value in the banking sector offers a field of continuous interest for researchers. This paper investigates the role of ESG materiality in firm value, based on a sample of banks operating in OECD countries, for the period 2016–2020. Adopting the materiality classification for the banking sector provided by the Sustainability Accounting Standards Board (SASB), the study consists of a multi-layer methodology. In the first stage, a dynamic technique for order preference by similarity to ideal solution (TOPSIS) and entropy methods are utilized to calculate ESG score based on ESG materiality for 1115 bank-year observations while in the second stage, value relevance analyses are applied in order to reveal whether ESG materiality affects firm value. The results depict that ESG performance based on ESG materiality has a positive influence on the firm value for both models, price-to-book value ratio (PBV), and Tobin’s Q (TQ). Moreover, collected from the Refinitiv database, ESG combined has a low impact on PBR whereas there is no significant effect on TQ. The implication is that the firm value is influenced by the materiality-adjusted ESG performance than by the extended ESG spectrum.

Material sustainability information and reporting standards. Exploring the differences between GRI and SASB

PurposeThis paper aims to contribute to the emerging debate on materiality with novel and original insights about the managerial and theoretical implications related to the adoption of the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB) as reporting standards. Furthermore, the paper will evaluate the main drivers that favor the combination of the two standards by companies to develop new knowledge about the hierarchical relationship between financial and sustainability materiality.Design/methodology/approachBuilding on a sample of 2,046 US listed companies observed during the period 2017–2020, the research is conducted using quantitative methods. Multinomial logistic regressions are used to evaluate the differences between GRI and SASB’s adoption.FindingsThe analysis highlights that financial and sustainability materiality are driven by different purposes. In detail, SASB’s adoption is driven by factors directly related to financial dynamics, while GRI’s adoption is influenced by the existence of corporate governance mechanisms inspired by sustainable and ethical principles. Furthermore, the last analysis reveals that the combination of the two standards is characterized by the predominance of sustainability materiality.Originality/valueTo the best of the authors’ knowledge, this is the first empirical study on the relationship between financial and sustainability materiality.

Which Environmental, Social, or Governance (ESG) Activities are More Informative to Stock Prices?

While prior literature has investigated the impact of ESG activities on investors and other stakeholders, our paper is the first to disaggregate firms' activities into each of the Sustainability Accounting Standards Board (SASB)’s definition of Material Environmental, Social, and Governance activities and determine which of these ESG activities provide the greatest information content of stock prices. We find that material Social activities provide the greatest stock price informativeness and after further disaggregating each of the ESG classifications we find that both Social Capital and Human Capital activities provide informative stock prices, while Business Model and Innovation activities reduce stock price informativeness. Cross-sectionally, this effect is strengthened by higher levels of institutional ownership, further supporting the idea that material Social activities are important to sophisticated investors. Our results are consistent in a battery of sensitivity analyses.

A foundation for ‘ethical capital’: The Sustainability Accounting Standards Board and Integrated Reporting

What purpose does ESG accounting really serve? As the “alphabet soup” of sustainability accounting standards thickens with the growing interest in ESG investing, this article looks beyond the usual critiques of social and environmental accounting to reveal how these new standards are productive for capital. Analysing the work of the SASB and the International Integrated Reporting Council (IIRC), the article shows that accounting for ESG is more than the smoke-screen or green-washing exercise that critical voices often observe. By mapping, quantifying and coding social, environmental and political issues to be incorporated into capital’s valuation regime, ESG accounting standards establish a technical and rhetorical basis upon which ethical claims can become productive for capital, regardless of whether or not these ethical claims translate into any practical difference in business operations and their socio-ecological impacts.

Corporate Sustainability: A Model Uncertainty Analysis of Materiality

ABSTRACTFor decades, scholars searched for a connection between a corporation's current performance with respect to sustainability and the future returns of its stock. In 2016, Khan, Serafeim, and Yoon published an apparent breakthrough in this quest: guidance on materiality from the Sustainability Accounting Standards Board allowed the construction of corporate sustainability scales that reliably predicted stock returns. Their finding had immediate and broad impact, but it remains, in its authors' own words, just “first evidence.” Here, we further explore the relationship between material-sustainability and stock returns by performing a “model uncertainty analysis.” We reproduce the original estimate but conclude that it is a statistical artifact. We then use machine learning to explore the practicality of employing historical associations to determine which aspects of sustainability are material to investors. We conclude that, for one popular source of data on corporate sustainability, accurate guidance on materiality may be difficult to achieve.JEL Classifications: Q51; D22; L25; C11; C18.

Harmonization of Sustainability Reporting Regulation: Analysis of a Contested Arena

This paper presents the case for the sustainability reporting field as a contested arena and examines the behavior and the influence of the various actors, such as the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), the International Integrated Reporting Council (IIRC), and the European Commission, including the European Financial Reporting Advisory Group (EFRAG) and the International Financial Reporting Standards (IFRS) Foundation in influencing the shape of the regulation in the arena. Drawing on the arena concept and documentary analysis, this study explores the dynamic in which each actor is attempting to change the rules within the arena and how this contributes to the harmonization and future direction of sustainability reporting. The findings of this study show that the actions and behavior of the various actors are premeditated and strategically calculated to maintain their influence, relevance, and defend their technical authority in the arena. The findings also suggest that sustainability reporting regulation is still far away from harmonization due to the perceived hegemony in the arena, and diversity in the overarching objective of the various actors and the inability of each actor to renounce its particular perspective and orientation. Insights are provided for policy makers on the urgent need to decide and reclassify the specific rules required in upholding the sustainability reporting arena.

Environmental, Social and Governance (ESG) metrics do not serve services customers: a missing link between sustainability metrics and customer perceptions of social innovation

PurposeThe purpose of this paper is to highlight challenges for service firms communicating Environmental, Social and Governance (ESG) efforts to customers. Specifically, it focuses on the relationship between ESG metrics and reporting and customer perceptions of social innovativeness.Design/methodology/approachThe empirical material comprises three years of data (2018–2020) covering more than 100 firms from three sources: (1) Social Innovation Index (Sii), which is collected as part of the American Innovation Index (Aii), (2) Bloomberg Sustainability Accounting Standards Board (SASB) ESG and (3) Datamaran.FindingsESG metrics and reporting do not suffice to explain customer perceptions of social innovativeness. Rather, a firm's industry plays the prominent role in affecting these perceptions where service firms are at a disadvantage as customers perceive services as less socially innovative compared to goods.Practical implicationsWhile ESG metrics and reporting provide important information for investors and regulators, they are not reflected in customers' perceptions of firms' social innovativeness, and services are at a disadvantage relative to goods. Therefore, services researchers and managers must advance their knowledge regarding how to better link ESG metrics and report to customers' perceptions.Originality/valueThe paper offers a first large-scale, cross-industry investigation of how ESG metrics and reporting impact customer perceptions of social innovativeness, leading to a research agenda on communication of ESG.