On April 2, the SASB released six industry “sustainability accounting standards” for the technology and communications sector. The industries covered are electronic manufacturing services and original design manufacturing, software and IT services, hardware, semiconductors, telecommunications, and internet media and services. As discussed in the August 2013 Update and April 2013 Update, the Sustainability Accounting Standards Board (SASB) is developing industry-specific standards for the disclosure of material environmental, sustainability, and governance (ESG) issues for 88 industries in 10 industry sectors. The SASB has previously released standards for the health care and the financials sectors.
SASB standards are comprised of disclosure guidance and accounting standards at an industry level. According to the SASB, the disclosure guidance identifies sustainability topics which may be material -- depending on a company’s specific operating context -- to a company in a particular industry. The accounting standards provide “standardized accounting metrics to account for performance on industry-level sustainability topics.”
The SASB’s web site says that its standards are “designed for disclosure in mandatory filings to the Securities and Exchange Commission” and that the standards “will result in the improved performance of 13,000+ corporations, representing over $16 trillion in funds, on the highest-priority environmental, social and governance issues.” The SASB has also said that it intends to ask the SEC to adopt the standards as part of the MD&A disclosure requirements and that it is working with the PCAOB on standards for auditor assurance.
However, one SEC Commissioner seems unimpressed with the SASB’s work. In a March 27, 2014 speech to the Corporate Law Institute at Tulane Law School, Commissioner Daniel M. Gallagher said that he had to “take exception to efforts by third parties that attempt to prescribe what should be in corporate filings.” He continued:
“The somewhat confusingly-named Sustainability Accounting Standards Board provides a good example of an outside party attempting to prescribe disclosure standards. I say ‘confusingly-named’ because the SASB does not actually promulgate accounting standards, nor does it limit itself to sustainability topics, although I suppose it is in fact a Board. The SASB argues that its disclosure standards elicit material information that management should assess for inclusion in companies’ periodic filings with the Commission.* * * [W]hile companies are free to make whatever disclosures they choose on their own time, so to speak, it is important to remember
10 Update │ May 2014
that groups like SASB have no role in the establishment of mandated disclosure requirements.”
Comment: Commissioner Gallagher’s statement underscores that the SASB’s work is not authoritative and raises questions about whether the SEC would be receptive to recognizing its standards. However, as noted in the prior Updates, companies should follow SASB standard setting that would apply to their industry. In addition, in some cases companies have received questionnaires from the SASB asking for responses regarding whether particular types of information are ”material” for the company or others in their industry. Because of the securities law ramifications of conceding that information is material, caution should be used in responding to these types of inquiries, and the company’s legal staff or outside counsel should be consulted.