sustainability accounting standards board...mix of information made available. (tsc indus. v....

Sustainability Accounting Standards Board Industry-Based Standards to Disclose Material Sustainability Issues

Katie Schmitz Eulitt

Associate Director, Stakeholder Engagement

Confidential Draft © SASB 2013

The Sustainability Accounting Standards

Board develops industry-specific

sustainability accounting standards for

use by publicly-listed corporations

designed for disclosure in filings to the

Securities and Exchange Commission

(SEC), such as the Form 10-K and 20-F.

SASB is a 501(c)3 non-profit

organization accredited to set standards

by the American National Standards

Institute (ANSI).

2 8/23/2013 © 2013 SASB™ CONFIDENTIAL & PROPRIETARY

Sustainability Accounting Standards Board Accounting for a sustainable future

Board of Directors

3

Robert G. Eccles, PhD* Harvard Business School

Steven Gunders Retired – Deloitte LLP

Daniel Hanson, CFA Jarislowsky Fraser

John Katovich** Katovich & Kassan Law Group, former Pacific Stock Exchange

Erika Karp Cornerstone Capital Inc.

Suz MacCormac*** Morrison & Foerster LLP

Catherine Odelbo Morningstar

Aulana L. Peters Retired – Gibson Dunn & Crutcher LLP,

former SEC Commissioner

Jean Rogers, PhD^ Sustainability Accounting Standards Board

Anne Sheehan**** CalSTRS

Ed Waitzer Stikeman Elliott LLP, former Ontario Securities Commission

*Chairman, ** Treasurer, ***Secretary, ****Vice-Chair, ^Ex-Officio

© 2013 SASB™ CONFIDENTIAL & PROPRIETARY 8/23/2013

The Problem


There’s too much noise in sustainability disclosure

• No mandatory way for corporations to disclose on sustainability

performance.

• Investors can’t benchmark how corporations are managing

sustainability issues.

• Significant change in sustainability performance can’t occur without

the rigor of accounting standards.

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&docid=iP2mJz_yeyNrCM&tbnid=kH2g7yrSuLuj-M:&ved=0CAUQjRw&url=http://www.paretosystems.com/negativity-signal-to-noise-ratio/&ei=3VoIUau6Lsr-lAWFqIDYAQ&bvm=bv.41642243,d.dGI&psig=AFQjCNGpLzZURGnNSZ1s4naNQksWypIUoQ&ust=1359587839470903

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&docid=-XbQhKGPzQZEeM&tbnid=F3HXrKZXXHs78M:&ved=0CAUQjRw&url=http://econintersect.com/b2evolution/blog3.php/2012/11/25/what-to-do-when-signal-noise-is-greater-than-one&ei=y1oIUbimFMXXkgWqv4G4CQ&bvm=bv.41642243,d.dGI&psig=AFQjCNGpLzZURGnNSZ1s4naNQksWypIUoQ&ust=1359587839470903

A Changing World

5 © 2012 SASB™ CONFIDENTIAL & PROPRIETARY

8/23/2013

Reso

urc

e C

on

str

ain

ts

• Impede the ability to create and sustain economic value

Go

vern

me

nts

• Are less able to regulate complex interactions between corporations and society

Valu

ati

on

s

• Have changed to reflect a high degree of intangible factors

Investo

rs

• Care about profit and how that profit is made

0%

20%

40%

60%

80%

100%

1975 1985 1995 2005 2010

Intangible Assets Tangible Assests

Changing Valuations

6

Source: Ocean Tomo

Components of S&P 500 Market Value

8/23/2013 © 2012 SASB™ CONFIDENTIAL & PROPRIETARY

1971: NRDC petition to expand environmental disclosure

SASB is a Necessary Evolution

8/23/2013 © 2012 SASB™ CONFIDENTIAL & PROPRIETARY 7

2002: The Sarbanes Oxley Act

United States securities laws promote efficient markets and informed

investment decisions through full and fair disclosure of material issues. In

the 40 years since FASB was created, the need for sustainability accounting

standards has arisen.

1934

1973

2012

1929: Stock market crash

SASB’s Value Proposition

Financial Accounting Standards

ESG Accounting Standards

Investment Value

• Efficient due diligence

and screening

• Data for determining

portfolio risk exposure

• Peer-to-peer

comparability of ESG

risk & opportunity

Corporate Value

• ESG legal and risk

management tool

• Cost-effective reporting

• Peer benchmarks

• Market-based

sustainability

perspective

Client Service Value

• New service offerings

• Powerful industry

research

• Thought leadership

3 8/23/2013 © 2013 SASB™ CONFIDENTIAL &

PROPRIETARY

Materiality Matters

9

The Supreme Court’s Definition

“Material information” is defined as

presenting a substantial likelihood that the

disclosure of the omitted fact would have

been viewed by the reasonable investor

as having significantly altered the “total

mix” of information made available.

(TSC Indus. V. Northway, Inc., 426 U.S. 438 (1976) and Basic

v. Levinson, 485 U.S. 224 (1988))

SASB adheres to the materiality of information requiring disclosure as

defined by U.S. regulation, SEC rulings, and judicial review

Rule 12b-2

Rule 12b-20

Rule 10b-5

Rule 210.1-02

(Regulation S-X)

Rule 210.4-01 (a)

(Regulation S-X)

Rule 210.4-02

(Regulation S-X)

Item 101, 103, and 303

(Regulation S-K)

Staff Accounting Bulletin

No. 99

SEC Materiality


SASB Support


Foundation Support

Advisory Support

Recent Media Coverage

Industry Working Groups

In four sectors to date:

$11.5T in Assets Under Mgt.

$6.5T in Market Capitalization

800 participants

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&docid=tbXIuu1ItGYlIM&tbnid=iJrIsCR0n2T6OM:&ved=0CAUQjRw&url=http://www.mhealthsummit.org/sponsor/rockefeller-foundation&ei=4sM3Ucz1A6OiyAG4xYHwBg&psig=AFQjCNGC4eLyT8J6zXcck5rDzAywgQVs0Q&ust=1362695511528152

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SASB in Context


Organization

Type • 501(c)3 • NGO • NGO

Orientation • United States • International • International

Accreditation • ANSI • None • None

Primary

Deliverable

• Industry-specific standards

80+ standards documents

• General guidance

1 guidance document

• General framework

1 framework document

Disclosure

Platform • Form 10-K • Voluntary report • Voluntary report

Reporting

Entities

• Public corporations

traded on U.S. exchanges


• Private companies


• Private companies

Materiality • Defined by US Securities Law

material to investors

• Defined internally

material to stakeholders

• Defined internally

material to investors

Working

Groups

• 10 total sectors with >200

members per sector

• Affiliation:

34% Investment

39% Corporate

27% Other

• 115 members

Affiliation (G4):

2% Investment

3% Corporate

95% Other

• 43 members

Affiliation:

23% Investment

14% Corporate

63% Other

INVESTORS

& LENDERS

$

Regulators

Aggregators

Mandatory Filings

Publicly-traded

Company X

$$$

Legal & Regulatory Framework

US

Securities Law

Voluntary Filings

Sustainability – Disclosure vs. Reporting Mandatory vs. Voluntary

Supporting Investors in Decision Making

13

Sector Allocation Portfolio Risk Benchmarking

Performance

SICS

Sustainable Industry

Classification System Materiality Map Accounting Metrics


Comparing Fundamentals


SASB

Accounting

Metrics

Sector Status

Healthcare ISSUED

Financials FINALIZATION

PHASE

Technology &

Communication

DEVELOPMENT

PHASE

Non-Renewable

Resources

DEVELOPMENT

PHASE

Transportation RECRUITING

Services Q1 2014 Kickoff

Resource

Transformation Q2 2014 Kickoff

Consumption Q3 2014 Kickoff

Renewable

Resources & Alt.

Energy

Q4 2014 Kickoff

Infrastructure Q1 2015 Kickoff

SASB’s Standards Development Process


Brief (Draft)

Std (Draft)

Brief v1.0

Std v1.0

Industry Working Group Participants

8/23/2013 16 © 2013 SASB™ CONFIDENTIAL & PROPRIETARY

Health Care participants

represent companies with more

than $800B market cap and

investors with more than $952B

in AUM

Financials participants represent

companies with more than $1.3T

market cap and investors with

more than $5T in AUM

Technology & Communications

participants represent

companies with more than

$1.8T market cap and investors

with more than $2.9T in AUM

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http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&docid=r-F5gc1La1ZxfM&tbnid=_NNzPlQSJTL_zM:&ved=0CAUQjRw&url=http://blog.tmcnet.com/blog/tom-keating/new-att-logo.asp&ei=bymMUYq5AYWKlAXjy4DoDQ&bvm=bv.46340616,d.dGI&psig=AFQjCNFsL-uj_4KLIQ4CGOgBj7E5xuOwcg&ust=1368226538354309


SASB

Sustainability

Accounting

Standard

Example of a SASB Standard


SASB

Industry Brief

Example of a SASB Industry Brief

Sustainability Issues for Health Care

Biotechnology Pharmaceuticals

Medical Supplies

& Equipment

Health Care

Delivery

Health Care

Distributors Managed Care

Env.

Capital Sustainable resource

management

Sustainable resource

management

Sustainable resource

management

• Sustainable resource

management

• Climate change and

natural disaster risks

• Sustainable Fuel

Management

• Climate change and

natural disaster risks

Socia

l C

apital

• Counterfeit drugs

• Safety of clinical trial

participants

• Ethical marketing

• Access to medicines

• Counterfeit drugs

• Safety of clinical trial

participants


• Access to medicines

• Product safety


• Affordability and fair

pricing

• Quality of care and

patient satisfaction

• Access for low income

patients

• Patient privacy and

electronic health

records

• Counterfeit Drugs

• Product safety

• Access to coverage

• Customer privacy and

technology standards

Hum

an

Capital

• Employee recruitment,

development and

retention

• Employee health and

safety


development and

retention

• Employee health and

safety


development and

retention

B.M

od

el &

Inn

ova

tio

n • Affordability and fair

pricing

• Drug safety and side

effects

• Affordability and fair

pricing

• Drug safety and side

effects

• Product design and

lifecycle management

• Product lifecycle

management

• Improved outcomes

Leaders

hip

&

Govern

ance • Corruption and bribery

• Manufacturing and

supply chain quality

management

• Corruption and bribery



management




management

• Fraud and

unnecessary

procedures

• Pricing and billing

transparency


• Plan performance

• Pricing transparency

and plan literacy

Em

erg

ing • Pharmaceuticals in the

environment

• Disease migration

• Pharmaceuticals in the

environment

• Disease migration

• Facilities designed for

wellness

• Preventative care

• Integration of

environmental and

social factors in

investment

management


From Material ESG Issues to Suggested Accounting Metrics

Pharmaceuticals

Material Issues Suggested Accounting Metrics

Access to Medicines Ranking in the Access to Medicines Index

Initiatives to promote access to health care products in priority countries

as defined by Access to Medicines

Drug Safety and Side

Effects

Number of products listed by the FDA in the Adverse Event Reporting

System (AERS) in the past five years

Number of fatalities due to side-effects

Number and value ($) of products recalled in the past five years

Safety of Clinical Trial

Participants

Lost revenue due to slowed or terminated clinical trials

Disclose information about the result of all of its clinical trials conducted

in ATM Index Countries regardless of the outcome & whether the trial

was conducted in-house or through a third-party.

Discuss any breach of international codes or lawsuits related to its

clinical trial practices in the (ATM) Index Countries during the last five

years.

Affordability and Fair

Pricing Reverse payments to manufacturing companies, to delay the production

of biosimilars or generics.

Ethical Marketing

Warning letters or amount ($) of settlements regarding false claim

allegations.

Adoption and enforcement of code of ethics governing interactions with

healthcare professionals.

Orphan Drugs Revenue from orphan drugs

Discussion of ongoing efforts to address orphan diseases

Pharmaceutical Water

Contamination

Percentage of wastewater treated for drug compounds produced by

company

Amount of product recovered through take-back programs

Product stewardship initiatives to promote reuse or adequate disposal

at the end of the lifecycle.

Efforts to understand metabolites and potential for environmental

migration of drugs into waterways and ecosystems (SASB)

Disease Migration Research relating to treatments and vaccines for malaria, dengue fever,

and other associated diseases

…


Building Consensus on Accounting Metrics

8/23/2013 © 2013 SASB™ CONFIDENTIAL & PROPRIETARY 21

Suggested Accounting Metrics Relevant. Useful. Cost-effective. Comparable. Auditable.

Discuss co-pay structures, deductibles, and premiums encouraging preventative care and wellness

All members 90% 90% 90% 70% 70%

Corporation 100% 100% 100% 33% 67%

Market Participant 100% 100% 100% 100% 100%

Others 67% 67% 67% 67% 33%

Percentage of enrollees engaged in wellness programs

All members 90% 70% 60% 60% 70%

Corporation 100% 100% 67% 33% 67%

Market Participant 100% 75% 75% 75% 100%

Others 67% 33% 33% 67% 33%

Corporations and investors agree on the usefulness and

cost-effectiveness of the Health Care Accounting Metrics

Standards Council

22

James Coburn CERES

Christine Ervin CE Co. - Former USGBC

Patricia Farrar Rivas Veris Wealth Partners

Jeffrey Hales* INSEAD

Shana Harbour - Observer US EPA

Tom Kiely McKinsey

Gayle Koch Axlor

Stephen Linaweaver Independent

Andrew Park – Observer Bloomberg

Jameela Pedicini CalPERS

Greg Rogers Guida Slavich Flores

Elizabeth Seeger KKR

George Serafeim Harvard Business School

Jeremy Shapiro Morgan Stanley

Nigel Topping Carbon Disclosure Project

Jean Rogers (ex-officio) Sustainability Accounting Standards Board


*Chair

SASB’s Impacts

23

CORPORATIONS

INVESTORS

The first industry-based sustainability standards

create unparalleled demand—from investors,

companies and the public—for decision-useful

sustainability information.

Improved performance of 13,000+ corporations,

representing over $16 trillion in funds, on the

highest priority sustainability issues. Companies

compete on sustainability, creating a race to the

top.


MARKET

Investors use SASB data and tools to inform

asset allocation and stock selection. Investors

invest in the most sustainable outcome. All

investing becomes impact investing.

sustainability accounting standards board...mix of information made available. (tsc indus. v....

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