Optimize your CSRD program with the SASB Standards
The corporate world in the European Union – and to a large extent across the globe – is coming to grips with the step change brought on by the Corporate Sustainability Reporting Directive (CSRD) and its European Sustainability Reporting Standards (ESRS). Indeed, more than 45,000 EU and non-EU companies are in scope of the CSRD, and they are inevitably swooping up countless others that are part of their supply chains.
If the implementation of the new regulatory requirements to produce sustainability disclosures that are standardized, externally assured, digitized, and XBRL tagged feels daunting, it’s because it is! These requirements are complex, transformational, and multi-dimensional.
Materiality as the cornerstone
The cornerstone of the CSRD is the principle of materiality, whereby companies must determine what sustainability matters(1) are material to them and that they must therefore manage and disclose. Under the CSRD, this materiality must be determined by applying a double materiality lens, i.e., looking at the sustainability matters that the company affects through its activities (inside-out or impact materiality) and the matters that affect the company’s operations (outside-in or financial materiality). Materiality must also be determined across the value chain and over multiple time horizons.
The fundamental premise is that companies should manage and disclose sustainability matters that matter to them, not those that don’t. Despite a few exceptions (climate change and the SFDR’s Principal Adverse Impact indicators), the ESRS state that users of sustainability statements should interpret the absence of disclosures on a sustainability matter or specific disclosure requirement to mean that these are not material for the company.
It’s no surprise then, that the first major hurdle companies must tackle in complying with the CSRD is conducting a robust double materiality assessment to determine what they need to include in their sustainability statements.
EFRAG has done its best to explain what a materiality assessment represents and how to go about it. In its Materiality Assessment Implementation Guidance, it refers to understanding the context as the first step of the process (Step A), which includes understanding the company’s “activities, products/services and the geographic locations of these activities”. It also refers to leveraging the IFRS Foundation’s International Sustainability Standards Board (ISSB) standards as inputs to the determination of materiality (specifically referring here to the SASB Standards), indeed because they can serve as ‘other contextual information’ in Step A.
The guidance further refers to considering the SASB Standards when determining ‘entity-specific disclosures’ on topics the company has deemed material but that are not currently covered by the ESRS, reminding readers that this is actually a requirement of the ESRS.(2)
Why would EFRAG do this? Simply because the SASB Standards have made sector-specific, context-based materiality determinations on a host of specific sustainability matters and reporting metrics.
(Re)Introducing the SASB Standards
In 2018, the Sustainability Accounting Standards Board (SASB) published an astounding body of work consisting of 77 different industry-specific sustainability accounting standards (the result of eight years of rigorous analysis and interactions with thousands of stakeholders), on the fundamental premise that the materiality of sustainability matters essentially depends on the industry and the nature of a company’s activities. Because they were developed by and for capital markets practitioners, they focus on financial materiality, in other words the topics that are most likely to affect companies’ operating and financial performance, assets and liabilities, risk profile, and cost of capital. To better understand the structure, precision, and richness of the standards’ contents, we recommend this 2019 article.
Since their publication, the uptake of the SASB Standards by reporting issuers has been quick and impressive. An estimated 78% of Russell 1000 companies had aligned their 2022 sustainability report to these standards (compared with 54% for the GRI Standards)(3), while SASB compiled a total of 2,499 companies across the globe either fully or partially applying the standards for that same reporting year.
Much has happened in the last six years, not the least of which is the consolidation of SASB into the IFRS Foundation and the inclusion of the SASB Standards into the Sustainability Disclosure Standards (IFRS SDS or IFRS S1 and S2) created by the ISSB. Following this consolidation, the SASB Standards were reviewed and refreshed to make them internationally applicable, and they form part of the IFRS SDS reporting requirements when considering material sustainability-related risks and opportunities (IFRS S1, §55a) and disclosure requirements (IFRS S1, §58a).
More recently EFRAG and the ISSB have officialized their close working collaboration and ongoing work, notably with the release in May 2024 of the ESRS-ISSB Interoperability Guidance. This is important for EU companies for two reasons.
First, given the obligation for EFRAG to develop sector standards in the next two years, it now seems likely it will leverage existing SASB Standards in the process, while the ISSB may well leverage the ESRS topic standards in developing its own thematic standards on biodiversity, ecosystems and ecosystem services and human capital. As a result, we are likely to see more alignment between the two sets of standards, not less, and applying the SASB Standards early would only facilitate future reporting compliance.
Second, the considerable efforts being deployed to make the IFRS SDS a global baseline of sustainability disclosures are beginning to bear fruit, as 20+ jurisdictions have already taken steps to introduce the standards in their legal or regulatory frameworks. Together, these jurisdictions account for nearly 55% of global GDP, more than 40% of global market capitalisation (75% when excluding the US), and more than half of global greenhouse gas emissions.(4) This means that companies across the globe will be complying with same or similar disclosure requirements that will include the SASB Standards. Therefore, applying the SASB Standards would help EU companies align their disclosures with those in other countries and provide comparable information to users.
How to use the SASB Standards in complying with the CSRD-ESRS
To make the most of using hte SASB Standards in complying with the CSRD-ESRS, we recommend a four-step process.
- Identify the SASB Standard(s) applicable to your company
On the SASB website you can use the Company Search tool, powered by the SASB Sustainability Industry Classification System, to identify and download (for free) the industry(ies) standards that apply to your company – because you can use more than one industry standard if your business is diversified. We encourage you to take the time to read the standards you will have selected.
- Identify the relevant topics and performance metrics
For each topic and performance metric included in the SASB Standard(s) that you will have selected, you must decide if they are material to your company – similar to the ESRS, companies do not need to disclose on a topic or a metric that they deem are not material.
- Do a mapping to the ESRS topic standards
For each topic you will have retained as material in step two, you can check in the ESRS (starting from the sub-sub-topics listed in ESRS1 §AR16 and working your way back up the chain to one of the 10 topics) if there is a corresponding topic standard – from this point, you’ll need to follow the process for implementing the ESRS (since this is beyond the scope of this article, please refer to your preferred subject matter expert or consultant).
Similarly, for each performance metric retained as material in step two, you can check in the ESRS if a corresponding performance metric exists, and make sure to include it in your disclosures.
- Comply with the ‘entity-specific disclosure’ requirements
All the topics and performance metrics that you will have retained in step two and for which there is no correspondence in the topic ESRS in step three will still need to be part of your disclosures pursuant to the requirement to include ‘entity-specific disclosures’ on topics the company has deemed material but that are not currently covered by the ESRS.
Using SASB Standards leads to better disclosure outcomes
Using the SASB Standards helps accelerate your company’s CSRD compliance program when used:
- as relevant contextual information in your double materiality assessment process
- to identify required ‘entity-specific disclosures’ on topics that are material for you but for which there are currently no ESRS
- as a leg up on future EFRAG sector standards
- to align with corporate disclosures in many jurisdictions adopting the ISSB standards and provide users with comparable information
Ultimately, using SASB Standards in both determining material sustainability matters and producing required disclosures will facilitate the external assurance process and optimize its outcomes. Indeed, assurance providers will be verifying not so much the outcomes but the process(5) by which material matters will have been determined, so any documentation to that effect will help. They will also be looking to verify disclosures against the standards that were applied to produce them.
There is no doubt that corporate sustainability reporting is experiencing a paradigm shift that will take time, effort, and resources to process. Our mantra, inspired by Albert Einstein, is to make things as simple as possible, but no simpler.
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(1) “Sustainability matters” refers to sustainability-related issues, topics, considerations, etc.
(2) From EFRAG IG1: “ESRS 1 AR 4 an undertaking shall consider IFRS Standards [which include SASB Standards] as a source of possible entity-specific disclosure. In addition, ESRS 1 transitional provisions (paragraph 131 (b)) identify IFRS [industry] standards as a source of disclosure that an undertaking may use in the definition of its entity-specific disclosures in the absence of ESRS sector-specific standards. While for ESRS preparers the use of SASB standards is optional (as this is a possible source of disclosure but not the only one), the provision of entity-specific disclosure, including sector metrics, is a requirement (see ESRS 1 paragraph 11, AR 1 to AR 5).”
(3) 2023 Sustainability Reporting In Focus, G&A Institute
(4) Jurisdictions representing over half the global economy by GDP take steps towards ISSB Standards, IFRS Foundation, 28 May 2024
(5) “The information in question must be disclosed if it is material, and the undertaking's materiality assessment process is subject to external assurance in accordance with the provisions of the Accounting Directive.” EC, 31 July 2023, Questions and Answers on the Adoption of European Sustainability Reporting Standards
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About the authors:
Marc Escande is the President of Sustain It Right. With more than 20 years of operational experience in supply chain management and ESG, he has on multiple occasions participated in the development and implementation of innovative software solutions. The Sustain It Right SaaS platform enables companies to optimize their programs to comply with the CSRD, IFRS S1 & S2, and SASB Standards, while significantly reducing their implementation costs and maximizing their power to transform business models.
Marie-Josee Privyk is an ESG Advisor and Founder of FinComm Services, providing individuals and companies with sustainability reporting information and advisory services. Marie-Josee is an experienced capital markets practitioner and Ex-Chief ESG Innovation Officer of a leading ESG data management software company. Her ESG Insights Collective platform helps sustainability reporting practitioners stay in the know and do their best work, with the information and advice they need.