NIRI Webinar Recap

On Thursday, May 7th, Clermont Partners sponsored a National Investor Relations Institute (NIRI) webinar focused on financial materiality and its potential impact on companies’ IR strategies. Attendees learned from the buy-side why investors are utilizing The Sustainability Accounting Standards Board (SASB) as an analysis framework, in addition to the reasons why a company should focus on upgrading its strategy to include SASB standards.

Moderated by Clermont Partners’ Partner, Elizabeth Saunders, the webinar discussion also featured:

  • Janine Guillot, CEO, SASB
  • Dan Nielsen, Managing Director – Head of ESG and Responsible Investing and Senior Portfolio Specialist, Great Lakes Advisors
  • Neil Stewart, Director of Corporate Outreach, SASB

In case you missed it, we invite you to replay the webinar here.

SASB: What is it?

SASB is a framework for reporting on ESG principles that was created by issuers and investors including Blackrock, Vanguard and State Street. It aims to develop a common language between companies and investors to discuss the financial impacts of sustainability in the same way that financial accounting standards have created a common language between companies and investors to discuss financial performance. SASB standards are focused solely on disclosure to investors.

SASB is not an ESG ratings system – no grades are assigned and no commentary is made on an individual issuer bases.  Like GRI or TCFD, issuers are asked to report material ESG issues within the SASB framework that has been created specifically for the issuer’s sector and subsector.

In a nutshell:

  • SASB uses standards to identify the sustainability issues that are financially material, or reasonably likely to impact the financial performance of a company.
  • The standards provide decision-useful information for investors.
  • Anyone can access the standards, making them cost-effective.
  • The standards are industry specific.  
  • Standards are determined using a transparent process that is roughly modeled after the process used to develop accounting standards, in that it is evidence based and market informed.

What makes SASB different from the rest of the acronyms we hear around ESG?

The non-financial information and analytics landscape is undoubtedly a complex yet thriving ecosystem with many non-profit and for-profit providers playing different roles. These players can largely fit into four buckets:

  1. Publish guidance for voluntary disclosure, often with company feedback loops (CDSB, GRI, TCFD, SASB).
  2. Request data from companies through questionnaires (CDP, Dow Jones Sustainability Indexes (DJSI)).
  3. Aggregate publicly available data from companies (Bloomberg, Refinitiv).
  4. Create assessments of companies based on public and/or private information to sell to investors (MSCI, FTSE4Good, RepRisk, TruValue Labs, Sustainalytics).
SASB

*Source: The Sustainability Accounting Standards Board (SASB)

How do I know what framework or standards to follow?

Most investor relations professionals are used to thinking about disclosure though the lens of serving only the investor audience, however, non-financial disclosure is of interest to multiple audiences ranging from investors to consumers, societies, employers, employees, and regulators. Given that it is arguably impossible to meet the needs for each audience with a single tool or report, companies should think about segmenting audiences. SASB is a good framework to consider for investors as it is oriented towards financial materiality, while GRI standards are of interest to other stakeholder groups, as it is oriented towards environmental and social impact.

Why is SASB important?

While BlackRock’s letter to CEOs on disclosure in the context of ESG received the most press, it is only an indication of the broad and deep base of investor support for SASB. Morrow Sodali’s 2020 Institutional Investor Survey revealed when it comes to a company’s ESG performance and approach, 81% of investors recommend SASB as the best standards to communicate their ESG information, while 77% recommend TCFD.

Investors look for two things when evaluating a company:

  1. Intrinsic value: How much is a company worth?
  2. Risk: How risky is the investment?

Evaluating material ESG issues provides investors with additional insight relating to both the intrinsic value and risk of an investment. Investors are looking for how effectively a company is identifying and pursuing opportunities related to ESG issues that will give it a competitive advantage, which will ultimately influence the intrinsic value of what they believe that company is worth. Additionally, investors are looking to identify those risks that could negatively impact an investment, inclusive of ESG issues. Thus, investors use SASB standards as a starting point for their materiality analysis, and it is the first part of their ESG evaluation of companies as it identifies which issues will influence value and affect the riskiness of investment.

What if I don’t have a strong ESG program?

Don’t let the perfect be the enemy of the good. If a company doesn’t have a strong track record in ESG reporting, and/or doesn’t have robust programs and policies in place, it is much better to disclose those programs and policies the company does have in place as well as its intentions to improve over time. Investors are looking for a conversation with companies to understand what their thinking is, their plans for the future, and how they expect to manage these issues in the long term.

ESG issues cannot be viewed in silo, as they are integrated throughout other issues affecting a company’s performance, including financial issues. More and more, investors are looking to speak to IROs and CFOs who understand the breadth of what the company is already addressing and those headwinds the company is facing, and can talk about ESG issues in the context of the company’s corporate-level priorities and strategies.